## Facts

- Juan and David Graiver controlled a Belgian bank and New Loring, Inc., a Panamanian shell company.
- American Bank & Trust Company (American Bank) was a New York state-chartered bank and a member of the Federal Reserve System, with FDIC-insured deposits.
- American Bank was wholly owned by American B & T Corporation (American Corporation) (defendant).
- Continental Trade Bank (Continental) (defendant) owned a majority of American Corporation’s stock; nine officers of American Bank (defendants) owned about 9% of American Corporation’s stock.
- In November 1975, Juan Graiver agreed to buy the American Corporation stock held by Continental and the officer-shareholders.
- Between mid-1975 and mid-1976, American Bank extended millions of dollars in credit to the Graivers and their related entities.
- The Graivers used the loan proceeds to help finance their purchase of American Corporation, and the bank’s extensions of credit left American Bank in a dangerous financial condition.
- David Graiver directed an American Bank representative to obtain new deposits, and American Bank received more than $5 million from a group of “new depositors,” including 59 foreign nationals (plaintiffs).
- Plaintiffs received receipts stating they were depositors of American Bank.
- Instead of being recorded on American Bank’s books as deposit liabilities, the funds were credited to accounts of the Belgian bank, New Loring, and/or American Corporation.
- In September 1976, American Bank went into receivership; the receiver arranged a sale to Bank Leumi Trust Company of New York (Bank Leumi), which assumed American Bank’s recorded deposits.
- Bank Leumi informed plaintiffs they would not be repaid because their funds were not carried on American Bank’s books as deposits.
- Plaintiffs lacked practical recovery from the Belgian bank (closed), New Loring (assetless), and American Corporation (insolvent).
- Plaintiffs sued Continental, American Corporation, and the nine bank officers under federal securities law and federal banking statutes, along with related claims; the district court dismissed under Rule 12(b)(6), concluding plaintiffs lacked an individual cause of action, and plaintiffs appealed.

## Issues

1. Whether the complaint stated a claim under § 10(b) of the Securities Exchange Act and Rule 10b-5 based on alleged misrepresentations and diversion of funds tendered as bank deposits, including whether the alleged scheme involved a “security” and a qualifying “purchase or sale.”
2. Whether the complaint stated claims under federal banking statutes based on alleged statutory violations affecting depositors, including whether those statutes support an implied private right of action and whether causation was adequately pleaded.
3. Whether any private cause of action exists under § 11(m) of the Federal Reserve Act, 12 U.S.C. § 248(m).

## Decision

- The Second Circuit reversed the Rule 12(b)(6) dismissal as to the federal securities-law claims and as to the federal banking-law claims other than those based on § 11(m), and remanded for further proceedings.
- The court affirmed dismissal of claims predicated on alleged violations of § 11(m) of the Federal Reserve Act, 12 U.S.C. § 248(m), holding that subsection does not support a private cause of action.

## Legal Principles

- On a Rule 12(b)(6) motion, a court assumes the complaint’s factual allegations are true and draws reasonable inferences in favor of the plaintiff; dismissal is improper if the pleadings state a claim that could entitle the plaintiff to relief.
- A § 10(b)/Rule 10b-5 claim requires fraud “in connection with” a securities transaction; when the legal characterization of the transaction is uncertain, dismissal at the pleading stage may be premature if the alleged facts could fit within the statute’s reach.
- Whether a federal banking statute supports a private damages action turns on statutory text, structure, and congressional intent; courts also consider whether the statute was enacted for the benefit of the class to which the plaintiff belongs and whether the alleged violation plausibly caused the loss.
- Even when a statute regulates banking conduct, it may be aimed at supervisory enforcement rather than private litigation; where a provision is framed as a grant of regulatory authority and lacks rights-creating language, courts may decline to imply a private right of action.
- Section 11(m) of the Federal Reserve Act, 12 U.S.C. § 248(m), does not create a private cause of action.

## Conclusion

The Second Circuit held that depositors who alleged they were solicited to place insured bank deposits but whose funds were diverted off the bank’s books plausibly stated federal securities and certain federal banking-law claims sufficient to survive a motion to dismiss, and it remanded for development of the record, while affirming dismissal of any claim resting on § 11(m) of the Federal Reserve Act because that subsection provides no private remedy.


Adato v. Kagan, 599 F.2d 1111 (1979)