## Facts

- Investors placed money in two hedge funds managed by Michael Lauer through Lancer Management Group, LLC.
- The funds were marketed as primarily investing in publicly traded common stocks, but allegedly invested heavily in illiquid restricted securities in small companies.
- Banc of America Securities LLC (BAS) served as the funds’ prime broker, executing trades, holding securities, and earning commissions and fees.
- BAS prepared monthly account statements and periodic position reports listing the values of the funds’ holdings; the complaint alleged these reports were used to calculate and verify net asset values (NAVs).
- Plaintiffs alleged BAS knowingly included falsified, inflated values for restricted or thinly traded securities on the position reports and understood the reports would be used by administrators and auditors to compute NAVs.
- Plaintiffs alleged the inflated NAVs induced investors to invest or remain invested and enabled Lauer and related entities to collect excessive fees that depleted fund assets.
- The funds ultimately collapsed and were liquidated, causing investor losses.
- Plaintiffs alleged they reasonably relied on the false NAV information and that BAS’s assistance in the inflation scheme proximately caused their losses.

## Issues

1. Whether the complaint plausibly alleged proximate causation between BAS’s alleged knowing assistance in falsifying valuations used to compute NAVs and plaintiffs’ investment losses, sufficient to survive dismissal under Rule 12(b)(6).
2. Whether the alleged involvement of other actors (fund managers, administrators, auditors) made the causal chain too remote at the pleading stage for aiding-and-abetting fraud and breach of fiduciary duty claims.

## Decision

- The Second Circuit reversed the district court’s Rule 12(b)(6) dismissal and remanded.
- The court held the complaint sufficiently pleaded proximate causation by alleging BAS’s falsified valuations were a substantial factor in producing the inflated NAVs that induced and retained investments and facilitated fee extraction that depleted fund assets.
- The court concluded the alleged causal chain was plausible and not too remote for pleading purposes, even though multiple participants were involved.

## Legal Principles

- On a Rule 12(b)(6) motion, a court must accept well-pleaded factual allegations as true and draw reasonable inferences in the plaintiff’s favor; plaintiffs need not prove causation at the pleading stage.
- Proximate cause may be pleaded by alleging facts that, if true, allow a factfinder to conclude the defendant’s conduct was a substantial factor in bringing about the harm, not merely a background condition.
- For aiding-and-abetting liability under New York law, a plaintiff must plead a primary violation, the aider and abettor’s actual knowledge, and substantial assistance; allegations that the defendant knowingly supplied false valuations central to the scheme can support substantial assistance and causation at the pleading stage.
- The presence of intermediaries or other wrongdoers does not necessarily break proximate causation where the defendant’s alleged conduct plausibly enabled the fraud to operate and the harm to occur.

## Conclusion

The Second Circuit reinstated investors’ aiding-and-abetting claims against a prime broker, holding that allegations the broker knowingly issued inflated valuation reports used to compute and communicate NAVs plausibly established proximate cause for investor losses at the pleading stage.


Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 568 F.3d 374 (2d Cir. 2009)