Irving H. Picard, Esq., Trustee for the Substantiv v. UBS AG

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY COURT

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 Liquidation of

Bernard L. Madoff Investment Securities LLC,

Plaintiff,

Adv. Pro. No. 10-05311 (CGM)

v.

UBS EUROPE SE (f/k/a UBS (LUXEMBOURG)

S.A.), UBS FUND SERVICES (LUXEMBOURG)

S.A., UBS THIRD PARTY MANAGEMENT

COMPANY S.A., M&B CAPITAL ADVISERS

SOCIEDAD DE VALORES, S.A., RELIANCE

INTERNATIONAL RESEARCH LLC,

LUXEMBOURG INVESTMENT FUND AND

LUXEMBOURG INVESTMENT FUND U.S.

EQUITY PLUS, as represented by their Liquidators

MAÎTRE ALAIN RUKAVINA and PAUL

LAPLUME, MAÎTRE ALAIN RUKAVINA and

PAUL LAPLUME, in their capacities as liquidators and

representatives of LUXEMBOURG INVESTMENT

FUND AND LUXEMBOURG INVESTMENT FUND

U.S. EQUITY PLUS,

Defendants.

MEMORANDUM DECISION DENYING DEFENDANT’S MOTION TO DISMISS

A P P E A R A N C E S :

Jenner & Block LLP

1155 Avenue of the Americas

New York, New York 10136

Counsel for Defendant M&B Capital Advisers Sociedad De Valores, S.A.

By: Richard Levin

Carl Wedoff

BAKER HOSTETLER LLP

45 Rockefeller Plaza

New York, NY 10111

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

By: Oren J. Warshavsky

David J. Sheehan

Gonzalo Zeballos

Tatiana Markel

OF COUNSEL: BAKER & HOSTETLER LLP

45 Rockefeller Plaza

New York, New York 10111

By: Benjamin Pergament

Robertson Beckerlegge

Geoffrey A. North

Michelle R. Usitalo

CECELIA G. MORRIS

UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is the motion of the Defendant, M&B Capital Advisers

Sociedad De Valores, S.A. (“M&B” or “Defendant”), 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. (Mot. Dismiss, ECF No. 292). Defendant seeks dismissal for lack of personal

jurisdiction and for failing to state a claim for recovery of subsequent transfers. 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

Defendant and will be addressed infra.

Background

The Court assumes familiarity with the background of the BLMIS Ponzi scheme operated

by Bernard L. Madoff (“Madoff”) 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 December 7, 2010. (Compl., ECF1 No. 1). The

Trustee filed a second amended complaint on February 24, 2023 (the “Complaint”). (Am.

Compl., ECF No. 284). Via the Complaint, the Trustee is seeking to recover transfers of

customer property allegedly made by BLMIS to Defendant, UBS Europe SE (f/k/a UBS

(Luxembourg) S.A.) (“UBS SA”), UBS Fund Services (Luxembourg) S.A. (“UBSFSL”), UBS

Third Party Management Company S.A. (“UBSTPM,” and together with UBS SA and UBSFSL,

the “UBS Defendants”), and Reliance International Research LLC (“RIR”). (Id. ¶¶ 270–76).

The Complaint alleges that Defendant was essential to the formation of Luxembourg

Investment Fund U.S. Equity Plus (“LIF-USEP”). (Id. ¶ 86). (“M&B (including through its

agents’ acts) was crucial to LIF-USEP’s establishment and operations and the growth of its

BLMIS investments.”). LIF-USEP was a feeder fund of BLMIS which invested wholly with

BLMIS in New York. (Id. ¶¶ 1–2, 65, 99, 126). The Complaint alleges that LIF-USEP was

created to invest in BLMIS with full knowledge of BLMIS’ fraud. (Id. ¶ 65) (“[LIF-USEP’s]

raison d’ȇtre was to invest with and profit from BLMIS’s operations, which LIF-USEP and its

agents knew took place in New York.”).

M&B is a Spanish securities broker-dealer organized under Spanish law with an office in

Madrid, Spain. (Id. ¶ 84). M&B was one of several entities formed by Guillermo Morenes

Mariategui (“Morenes”) and Francisco Javier Botín Sanz de Sautuola O’Shea ("Botín"). (Id. ¶

85). Another entity, M&B Capital Advisers Gestión SGIIC (“M&B SGIIC”), which was

involved with M&B’s BLMIS investments, merged into M&B in January 2010, and received

transfers of customer property. (Id.). The Complaint alleges that Defendant and related M&B

1 Citations to this Court’s electronic docket refer to the docket of adversary case number 10-05311 unless otherwise

noted.

entities “collectively functioned as a family office for wealthy European investors, providing a

variety of investment advisory and related services.” (Id. ¶ 86).

The feeder fund’s alleged knowledge of BLMIS’s fraud centers on the relationship

between Manuel Echeverría and Madoff. (Id. 257–63). Echeverría was the agent of LIF-USEP

and of M&B with respect to LIF-USEP’s investments with BLMIS. Prior to the creation of LIF-

USEP, Echeverría had “been in charge of the Madoff relationship for Optimal U.S. Equity Fund .

. . a $3.2 billion BLMIS feeder fund.” (Id. ¶ 2). In this role, Echeverría “cultivated a

relationship with Madoff and a network of Madoff-approved investment professionals.” (Id.).

Bernard Madoff “viewed Echeverría as one of his top European envoys and a source of new

investment capital.” (Id. ¶ 91).

The Complaint alleges that Echeverría had brought a group of well-connected investment

professionals together around Morenes and Botín, to establish LIF-USEP in 2005 as a feeder

fund of BLMIS. (Am. Compl. ¶¶ 2, 87). Echeverría had done so to “unlock an opportunity for

direct BLMIS investment” that would get past the limits imposed by investing with other feeder

funds. (Id. ¶¶ 88–89). Echeverría developed the architecture for LIF-USEP. (Id. ¶ 92). M&B

was to serve as “the fund’s distributor, signing a Consultancy and Exclusive Introducing

Agreement with UBS SA.” (Id.).

The Complaint alleges that Echeverría regularly communicated with Madoff in person,

by telephone, and by fax regarding LIF-USEP’s establishment and operation. (Id. ¶ 261) (“At

least fifty times during LIF-USEP’s existence, Echeverría communicated with Madoff, Reliance,

or UBS on LIF-USEP’s and M&B’s behalf, in furtherance of the effort to expand BLMIS

investment.”). Echeverría “arranged for a meeting with Madoff and facilitated the opening of a

BLMIS account for LIF-USEP.” (Id. ¶ 93). He assembled service providers that would be

acceptable to regulators and to Madoff. (Id. ¶ 94). Knowing that Reliance, a firm headed by his

friend, Tim Brockman, sought access to a BLMIS feeder fund, Echeverría approached Brockman

about LIF-USEP. (Id. ¶ 95). Brockman then committed Reliance Gibraltar to serve as LIF-

USEP’s official investment advisor. (Id.).

Knowing that UBS had acted as a service provider for other BLMIS feeder funds,

Echeverría traveled with the director of M&B “to Luxembourg to meet with UBS SA about LIF-

USEP. As it had with Luxalpha, UBS signed on to serve as LIF’s official sponsor, administrator,

and custodian.” (Id. ¶ 96–97). UBS “agreed to stock LIF-USEP’s board of directors with UBS

employees.” (Id. ¶ 98). LIF-USEP’s board of directors was stocked with UBS SA employees.

(Id. ¶¶ 98, 260). “All five of LIF-USEP’s directors were employees of UBS SA.” (Id. ¶ 98).

This architecture was in place when LIF-USEP was formed in August 2005. (Id. ¶ 99).

Echeverría worked as M&B’s and LIF-USEP’s agent after the latter’s formation and

carried out “a number of behind-the-scenes roles critical to the fund’s success.” (Id. ¶ 100). He

managed the “flow of subscription and redemption requests” while also making sure to not

trigger the “irritation of Madoff . . . with inopportune redemption requests.” (Id.).

Trustee’s Complaint

In his Complaint, the Trustee asserts four counts. (Am. Compl. ¶¶ 284–308). Counts one

and four are directed at LIF-USEP and against Luxembourg Investment Fund SICAV (“LIF”)

the alleged umbrella fund of LIF-USEP. (Id. ¶¶ 65, 284, 302). Count two is directly solely

against LIF-USEP. (Id. ¶ 291). Via count three of the Complaint, the Trustee seeks to recover

transfers of BLMIS customer property that BLMIS made to LIF-USEP (the “Initial Transfers”)

and were subsequently transferred to the Defendant, the UBS Defendants, and RIR (the

“Subsequent Transferees”). (Id. ¶ 297–300).

Initial Transfers

According to the Complaint, “LIF-USEP maintained BLMIS account no. 1FR123.” (Id.

¶ 264). LIF-USEP sent funds to BLMIS or to BLMIS’s JPMorgan Chase in New York, Account

No. xxxxxxxxxxx1703 “for application to the [1FR123] Account and the purported conducting

of trading activities.” (Id. ¶ 265). Within two years of the filing date, BLMIS allegedly made

transfers to or for the benefit of LIF-USEP of at least $498.3 million. (Id. ¶ 266). The Trustee is

seeking to avoid and recover the initial transfers paid from BLMIS to LIF-USEP pursuant to 11

U.S.C. §§ 548, 550(a)(1) and to 15 U.S.C. § 78fff-2(c)(3). (Id. ¶ 266).

Subsequent Transfers

Count three is asserted against M&B, the UBS Defendants, and RIR. (Am. Compl. ¶

297). The Complaint alleges that LIF-USEP transferred some portion of the Initial Transfers to

each of the defendants “as payment for their alleged service of LIF-USEP,” thereby constituting

subsequent transfers. (Id. ¶ 270). The Complaint alleges that the UBS Defendants received at

least $18,537,826 and that RIR received at least $4,324,482 in subsequent transfers from the

feeder fund. (Id. ¶¶ 271, 273).

The Complaint alleges that Defendant “received at least $9,803,268 in subsequent

transfers from LIF-USEP.” (Id. ¶ 272). From September 2005 to December 2008, Defendant

received $6,024082 in “trailing and distribution fees from UBS SA and UBSTPM,” which those

defendants received from LIF-USEP. (Id.). Between 2006 and 2007, LIF USEP transferred at

least $2,878,597 to M&B in connection with M&B’s proprietary investments and at least

$900,590 to M&B SGIIC in connection with M&B SGIIC’s proprietary investments. (Id.).

On May 5, 2023, Defendant filed a motion to dismiss the Complaint against it. (Mot.

Dismiss, ECF No. 292). In the motion to dismiss, Defendant argues that the Trustee has failed to

plausibly allege that Defendant received transfers of customer property of BLMIS and that it is

not subject to personal jurisdiction in this Court. (See Mem. L. 1–2, ECF No. 292). The Trustee

has filed opposition. (Opp’n, ECF No. 303). The parties waived oral argument on this motion.

(Stip. and Order, ECF No. 312).

Discussion

Personal Jurisdiction

Defendant, a foreign entity, seeks dismissal for lack of personal jurisdiction. The Trustee

argues that there is specific jurisdiction over the Defendant. (Opp’n 7, ECF No. 303). The

Complaint alleges that Defendant maintained minimum contacts with New York in connection

with the claims in this adversary proceeding. (Am. Compl. ¶ 17, ECF No. 284).

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). At the pre-discovery stage, the allegations need not be factually

supported. See Dorchester Fin., 722 F.3d at 85 (explaining that an averment of facts is necessary

only after discovery).

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, 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));

BNP Paribas S.A., 594 B.R. at 187.

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.

Defendant argues that the Trustee has not alleged that it has sufficient contacts with New

York. (Mem. L. 6–7, ECF No. 292). The Complaint suggests otherwise.

Defendant is a securities broker-dealer organized in Spain. (Id. ¶ 84). M&B allegedly

created and ran the feeder fund, LIF-USEP, which invested $758 million with BLMIS. (Am.

Compl. ¶¶ 169, 258–59.). It allegedly received BLMIS account statements and trade

confirmations. (Id. ¶ 259). As distributor of LIF-USEP, M&B recruited investment capital for

the fund. (Id. ¶¶ 4, 92, 179). It received millions in fees in the form of BLMIS money through

LIF-USEP as a result from its relationship to LIF-USEP. (Id. ¶¶ 92, 171, 270). M&B also

served as the feeder fund’s official sponsor, custodian, administrator, manager, and advisor. (Id.

¶ 259).

Defendant states that it performed various services for the feeder fund including

distributing investments to clients and discussing fees and liquidity with service providers of the

feeder fund. (Hergueta Decl. ¶ 12, ECF No. 293). The Trustee alleges that Defendant edited

parts of LIF-USEP’s prospectus and procedures, including parts regarding the fund’s investment

policy and fees, and sent those edits to individuals in New York, including Justin Lowe of RIR.

(See id.). By funneling clients to the feeder fund, M&B “deepen[ed] BLMIS’s insolvency, and .

. . created a false appearance of regulatory compliance.” (Am. Compl. ¶ 180). After creating

new feeder funds—Landmark Investment Fund and Defender Limited Fund—Defendant

transmitted their opening agreements to BLMIS in New York and delegated management

authority for Landmark to BLMIS. (Id. ¶179); (Ruiz Decl. ¶ 16, ECF No. 104); (North Decl. Ex.

6.).

These allegations are legally sufficient to constitute a prima facie showing of jurisdiction.

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). The UBS PJ

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. Montana 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).

The Trustee is asserting subsequent transfer claims against M&B for monies it received

from the BLMIS feeder fund. (Am. Compl. ¶¶ 270–76). These allegations are directly related to

their investment activities with BLMIS through LIF-USEP. BNP Paribas S.A., 594 B.R. at 191

(finding that the redemption and other payments the defendants received as direct investors in a

BLMIS feeder fund were the proximate cause of the injuries that the Trustee sought to redress

and 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).

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 defendant, 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 eleven years. (See Mot. to

Withdraw Reference, ECF No. 84). M&B is represented by U.S. counsel and has continually

associated with other New York-based defendants. The forum and the Trustee both have a

strong interest in litigating BLMIS adversary proceedings in this Court. 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 Defendant intentionally targeted its activities at BLMIS, the Trustee has met

his burden of alleging jurisdiction as to each subsequent transfer that originated with BLMIS. 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). Defendant

was instrumental in the creation of a BLMIS feeder fund, misled regulators, and brought new

capital in to perpetuate the fraud. (Am. Compl. ¶¶ 70–74, 155–63). The Trustee has made a

prima facie showing of personal jurisdiction.

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).

While the Trustee must allege that the initial transfers from BLMIS to the feeder fund are

avoidable, he is not required to avoid the transfers received by the initial transferees 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. IBT Int’l,

Inc. v. Northern (In re Int’l Admin. Servs., Inc.), 408 F.3d 689, 706–07 (11th Cir. 2005).

The Trustee seeks recovery of initial transfers made within two years of the filing date.

(Am. Compl. ¶ 266) (“During the two years preceding the Filing Date, BLMIS made transfers to

or for the benefit of LIF-USEP in the amount of at least $498,300,000 . . . .”).

Whether BLMIS’s Initial Transfers Are Avoidable as Intentionally Fraudulent

Conveyances?

In relevant part, § 548(a)(1)(A) allows the Trustee to avoid any transfer made within two

years before the filing date of this SIPA action, if BLMIS made the transfer with “actual intent to

hinder, delay, or defraud.” 11 U.S.C. § 548(a)(1)(A).

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).

Because the Trustee has pleaded that BLMIS operated a Ponzi scheme, the Trustee’s

burden of pleading actual fraudulent intent is satisfied. (Am. Compl. ¶¶ 38, 61–62); (id. ¶ 24) (

Madoff pleaded guilty and admitted he operated a Ponzi scheme through BLMIS). The “Ponzi

scheme presumption” allows courts to presume actual intent to defraud on part of the operator of

the Ponzi scheme. Donell v. Kowell, 533 F.3d 762, 770 (9th Cir. 2008) (“The mere existence of

a Ponzi scheme is sufficient to establish actual intent to defraud.”). In this case, the Ponzi

scheme presumption allows the Court to presume that BLMIS made the initial transfers with

actual intent to defraud because Madoff has admitted to operating a Ponzi scheme.

The mere existence of a Ponzi scheme “demonstrates actual intent as matter of law

because transfers made in the course of a Ponzi scheme could have been made for no purpose

other than to hinder, delay or defraud creditors.” Bear Stearns Secs. Corp. v. Gredd (In re

Manhattan Inv. Fund Ltd.), 397 B.R. 1, 8 (S.D.N.Y. 2007). The “Ponzi scheme presumption”

makes perfect sense in cases such as this one. BLMIS had no legitimate assets and therefore

every transfer made by BLMIS was made with actual intent to defraud in order to ensure that

Ponzi scheme would survive.

The Trustee has pleaded that BLMIS operated a Ponzi scheme and as such, BLMIS’

actual fraudulent intent is presumed via the Ponzi scheme presumption. (Am. Compl. ¶¶ 1, 24–

28, 38, 287–89). Intent to defraud is established as debtor operated a Ponzi scheme. Picard v.

Cohen, Adv. Pro. No. 10-04311 (SMB), 2016 WL 1695296, at *5 (Bankr. S.D.N.Y. Apr. 25,

2016) (citing Omnibus Good Faith Decision, 531 B.R. at 471) (“the Trustee is entitled to rely

on the Ponzi scheme presumption pursuant to which all transfers are deemed to have been made

with actual fraudulent intent”); Picard v. Cohmad Sec. Corp., 454 B.R. 317, 330 (Bankr.

S.D.N.Y. 2011) (“the fraudulent intent on the part of the debtor/transferor . . . is established as a

matter of law by virtue of the ‘Ponzi scheme presumption’”). That BLMIS operated as a Ponzi

scheme is well-established and the Court relies on earlier findings of same and holds that the

Trustee has met its burden of pleading BLMIS’ actual intent on this issue. See Picard v. Legacy

Capital Ltd., 603 B.R. 682, 688-93 (Bankr. S.D.N.Y. 2019) (discussing in detail that BLMIS

was a Ponzi scheme and why the Trustee is permitted to rely on the Ponzi scheme presumption

to prove intent as a matter of law); see also Bear Stearns Secs. Corp. v. Gredd (In re Manhattan

Inv. Fund Ltd.), 397 B.R. 1, 11 (S.D.N.Y. 2007) (“[T]he Ponzi scheme presumption remains the

law of this Circuit.”).

BLMIS Customer Property

Defendant argues that the Complaint fails to plausibly allege that it received subsequent

transfers from LIF-USEP consisting of avoidable BLMIS customer property. (Mem. L. 2, ECF

No. 292). Specifically, Defendant argues that the “allegations in the Complaint are thus not only

implausible but in fact impossible.” (Id. at 15).

Rule 8(a) governs the Trustee’s pleading burden and a short and plain statement that the

pleader is entitled to relief is all that is required. Fed. R. Civ. P. 8(a). This standard of pleading

is meant to ensure that the defendant has proper notice of the claim, while recognizing the

limitations a plaintiff may have in setting out each detail of the claim before discovery. In re

Enron Corp., No. 01-16034 AJG, 2006 WL 2400369, at *4 (Bankr. S.D.N.Y. May 11, 2006). In

a subsequent transfer claim, this means only that a defendant must be adequately apprised of the

subsequent transfers that the Trustee seeks to recover. Picard v. Cohmad (In re BLMIS), 454

B.R. 317, 340 (Bankr. S.D.N.Y. 2011) (“Cohmad II”). In the Complaint, the Trustee provides

the Defendant with the “who, when, and how much” of the purported transfers. Cohmad II, 454

B.R. at 340; (Am. Compl. ¶¶ 270–76).

Based on the Trustee’s investigation to date, M&B (including M&B SGIIC,

which merged into M&B) received at least $9,803,268 in subsequent transfers

from LIF-USEP:

a. M&B received at least $6,024,082 in trailing and distribution fees from UBS

SA and UBSTPM, consisting of management fees UBS SA and UBSTPM

received from LIF-USEP in connection with M&B’s role as LIF-USEP’s

distributor from September 2005 to December 2008.

b. Between 2006 and 2007, LIF-USEP transferred at least $2,878,597 to M&B in

connection with M&B’s proprietary investments.

c. Between 2006 and 2007, LIF-USEP transferred at least $900,590 to M&B

SGIIC in connection with M&B SGIIC’s proprietary investments.

(Id. ¶ 272).

The Trustee has alleged that the LIF-USEP sole business was investing with BLMIS. (Id.

¶ 18) (“LIF-USEP’s sole purpose was to direct investments into BLMIS in New York. Thus, the

ultimate source of profit and/or revenue, for all of the Defendants in this action . . . .”). The

feeder fund received hundreds of millions of dollars in initial transfers of customer property from

BLMIS. (Id. ¶ 266) (“BLMIS made transfers to or for the benefit of LIF-USEP in the amount of

at least $498,300,000. . . .”). Any and all subsequent transfers made from the feeder fund to

Defendant are very likely comprised of BLMIS customer property.

As has previously been stated by this Court,

the Trustee is an outsider to these transactions and will need discovery to identify

the specific subsequent transfers by date, amount and the manner in which they

were effected. The Moving Defendants are a group of interrelated individuals and

entities .... Whether they additionally received Subsequent Transfers of BLMIS

funds from one another is a question to which they, and they alone, have the

requisite information to respond.

Picard v. Mayer (In re BLMIS), No. 08-01789, Adv. No. 20-01316, 2021 WL 4994435, at *5

(Bankr. S.D.N.Y. Oct. 27, 2021).

The Defendant argues that the Complaint fails to adequately allege that the transfers were

comprised of BLMIS customer property, as it “alleges that Subsequent Transfers the trustee

seeks to recover were made to M&B in 2005 and 2006, that is, before the first Initial Transfer

from BLMIS to LIF-USEP.” (Mem. L. 15, ECF No. 292). However, the Court finds that the

Trustee has plausibly alleged M&B received BLMIS customer property. The Complaint

plausibly alleges that LIF-USEP’s sole business was investing with BLMIS, and that the fund

received hundreds of millions of dollars in initial transfers of customer property from BLMIS.

(Am. Compl. {ff 2, 266). The “ultimate source of profit and/or revenue, for all of the Defendants

in this action, was business activity expected to be undertaken exclusively in New York.” (/d.

18).

The Complaint plausibly alleges that all transfers from the feeder fund to Defendant were

of BLMIS customer property. Nothing more is required at this early stage of the proceeding.

See Picard vy. UBS AG (in re BLMIS), Adv. Pro. No. 10-04285 (CGM), 2022 WL 17968924, at

*16-17 (Bankr. S.D.N.Y. Dec. 27, 2022). The calculation of LIF-USEP’s customer property and

what monies were used to make redemption payments are issues of fact better resolved at a later

stage of litigation.

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

Poughkeepsie, New York Hon. Cecelia G. Morris —

ees U.S. Bankruptcy Judge

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