## Facts

- Investors brought a putative class action after investing in four Fairfield Greenwich Group-managed feeder funds that placed most assets with Bernard L. Madoff Investment Securities, later revealed as a Ponzi scheme.
- The feeder funds included Fairfield Sentry Ltd., Fairfield Sigma Ltd., Greenwich Sentry L.P., and Greenwich Sentry Partners L.P.
- Plaintiffs alleged Fairfield-related entities and executives marketed the funds as subject to extensive due diligence, risk monitoring, and portfolio oversight, while effectively delegating management to Madoff and failing to investigate warning signs.
- Plaintiffs alleged fund administrators and custodians (Citco-related entities) performed NAV calculations, recordkeeping, subscription/redemption administration, and custody functions, yet disseminated or relied on inaccurate information and failed to detect problems.
- Plaintiffs alleged outside auditors (PricewaterhouseCoopers-related entities) audited fund financial statements but failed to detect or respond to irregularities associated with Madoff’s operations.
- After Madoff’s fraud collapsed, plaintiffs claimed substantial losses and sued for federal securities violations and multiple state-law tort, fiduciary-duty, contract, and quasi-contract theories.
- Defendants moved to dismiss the Second Consolidated Amended Complaint under Rule 12(b)(6), raising pleading, reliance, loss-causation, duty, SLUSA, extraterritoriality, and contractual clause defenses.

## Issues

1. Whether the complaint adequately pleaded Exchange Act § 10(b) and Rule 10b-5 claims, including material misstatements/omissions, scienter, reliance, and loss causation.
2. Whether the complaint adequately pleaded Exchange Act § 20(a) control-person liability against certain Fairfield-related entities and individuals.
3. Whether state-law claims (fraud, negligent misrepresentation, fiduciary duty, negligence/gross negligence, contract, unjust enrichment) were pleaded with sufficient particularity and supported by plausible duties.
4. Whether defenses based on SLUSA preclusion, extraterritoriality, and forum-selection/choice-of-law provisions warranted dismissal at the pleading stage.

## Decision

- The court granted the motions to dismiss in part and denied them in part.
- The court permitted core § 10(b)/Rule 10b-5 claims to proceed against certain Fairfield-related defendants based on sufficiently pleaded misstatements/omissions about due diligence and oversight, and adequately pleaded scienter and loss causation.
- The court permitted certain § 20(a) claims to proceed where the complaint plausibly alleged control by Fairfield-related executives and entities over primary violators.
- The court allowed multiple state-law claims to proceed against key defendants where the complaint specified the alleged misstatements, the speakers, the timing/medium, and why the statements were misleading, while dismissing more conclusory or inadequately supported theories as to particular defendants.
- The court rejected categorical dismissal based on SLUSA and contractual or extraterritoriality arguments at this stage, treating those defenses as requiring more defendant- and claim-specific analysis than defendants’ broad dismissal request provided.

## Legal Principles

- A § 10(b)/Rule 10b-5 claim may proceed at the pleading stage where plaintiffs plausibly allege material misrepresentations or omissions in offering/marketing materials about investment oversight and risk controls, and connect those statements to their investment decisions and losses.
- Scienter may be pleaded by alleging facts supporting a strong inference of recklessness, including ignored warning signs inconsistent with defendants’ claimed sophistication and monitoring.
- Loss causation is plausibly alleged where the complaint connects the concealed risk (lack of meaningful oversight and exposure to a fraudulent scheme) to losses realized when the truth emerged and the scheme collapsed.
- Control-person liability under § 20(a) may be pleaded by alleging managerial authority and the power to direct the primary violator’s conduct, subject to later proof.
- Under New York-law standards applied at the pleading stage, fraud-based state claims must satisfy Rule 9(b) by identifying the alleged misstatements/omissions with particularity and explaining why they were false or misleading.
- Service providers’ potential tort and fiduciary duties may depend on alleged functions and relationships (including investors’ reliance on administrators/custodians for accurate NAV reporting and custody-related responsibilities), making duty and scope questions fact-intensive.
- Broad SLUSA preclusion and forum/choice-of-law defenses generally do not justify across-the-board dismissal where claim elements and investor consent/scope questions require more granular development.

## Conclusion

The court largely allowed investors’ claims arising from Madoff feeder-fund losses to proceed past the pleading stage, sustaining significant federal securities-fraud and related state-law theories against key fund sponsors and certain service providers while dismissing only those claims insufficiently pleaded or unsupported as to particular defendants.


Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372 (S.D.N.Y. 2010)