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April 17, 2001


The opinion of the court was delivered by: Loretta A. Preska, United States District Judge.


Plaintiffs, Helen and Rose Louros ("plaintiffs"), bring this diversity action against Arnold Cyr, Lynn Cyr, Ken Adler, H. Freeman Wilkinson, James Sexton, Douglas Johnson and Kevin McGeever, claiming fraud, breach of contract, conversion, unjust enrichment, breach of fiduciary duty, violations of New York State Banking and General Business laws, negligence and civil RICO. Defendants Arnold Cyr, Lynn Cyr,*fn1 Ken Adler and H. Freeman Wilkinson ("defendants") move to dismiss the second amended complaint (the "Complaint") pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim. In addition, defendant H. Freeman Wilkinson moves to dismiss the Complaint against him for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2) and for improper venue pursuant to Fed.R.Civ.P. 12(b)(3). For the reasons set forth below, the motion is granted with respect to Claims Seven, Eight, Nine and Ten and denied with respect to Claims One, Two, Three, Four, Five and Six.


Despite plaintiffs' somewhat convoluted and confusing presentation of the facts, on a motion to dismiss, I accept as true plaintiffs' recitation of the facts. In September or October 1998, H. Freeman Wilkinson contacted Douglas Johnson and Kevin McGeever about establishing a private bank in the country of Liechtenstein. (Compl., Ex. D). Wilkinson stated that this bank would be a branch of a larger, existing Liechtenstein bank, and would be able to offer all the services of a private bank, including debit cards and internet banking. (Id.). Wilkinson "pointed out that Liechtenstein was the best off-shore scenario from a security and confidentiality standpoint." (Id.). The goal for Johnson and McGeever was to "place funds into a[n] [investment] program once they were aggregated to $10 million." (Id.). For the depositor, banking in Liechtenstein would offer "personal attention," "individualized services to each client," a "dollar for dollar" guarantee on all deposits and "tax-free interest income." (Id., Ex. E).

In order to set up a private bank, Wilkinson stated that it was necessary to have a contact who had a connection to the Liechtenstein government; this contact was James Sexton. (Compl., Ex. D). For a fee of $25,000, Sexton set up "the whole bank structure" for Johnson and McGeever. (Id.). The original idea was to establish the bank as a "trust entity under [Verwaltungs und Privat Bank] and the trust would have a main account with VP Bank and individual, depositor controlled, sub-accounts to the main account for individual depositors." (Id.).

Under this scenario, Johnson and McGeever were the "creators" of the bank, (id., Ex. M); Ken Adler marketed and administered the program by attracting depositors and acting as the conduit for the required paperwork and communications; and Wilkinson handled the individual account balances and monthly statements (id., Ex. D). Sexton required all prospective depositors to submit bank reference letters and passport information as well as a completed power of attorney forms appointing Sexton attorney-in-fact for the sole purpose of establishing the bank accounts in Liechtenstein. (Compl., Ex. D, id., Ex. I). Together, these individuals formed the Global Trust Management Team, and the bank was named the Global Trust Bank.

On or about December 17, 1998, Arnold Cyr called Rose Louros and stated that he had established an agreement between an entity he controlled, Levite Holdings, and a Liechtenstein bank. (Id. ¶ 26(a)). Under this arrangement, Cyr stated, Rose and Helen Louros would have individual bank accounts with "the Liechtenstein Bank," "full control over [their] funds at all times," and their "funds would not be moved, liened, hypothecated or encumbered in any way." (Id.). Cyr's call was followed by a faxed memorandum confirming the aspects of the arrangement. (Id., Ex. J.). On December 22, 1998, Arnold Cyr called Helen Louros again and stated that "he had become part of the Global Trust Management Team and that all of plaintiffs' accounts and transactions would be through Global Trust Bank (not Levite Holdings)." (Compl., ¶ 26(c)). Cyr also gave plaintiff instructions of how to wire money to Global Trust Bank in Liechtenstein. (Id.; id., Ex. G). Cyr assured Rose Louros that each depositor's funds would be placed in a separate account; that the principal in the account was 100% guaranteed; that the depositor would have sole control over the account and could withdraw the principal at any time; that the funds would be used for a high yield investment program that was to begin in February 1999; and that no funds would be moved without the depositor's written consent. (Id. ¶ 26(c)(i)-(iv)). The high yield investment program was to last three months after which "Investors could roll over their deposits into another high yield investment program at Global Trust Bank." (Id., ¶ 26(e)(ii)).

Rose and Helen Louros completed powers of attorney naming James Sexton attorney-in-fact on December 18, 1998 and December 31, 1998, respectively. (Compl., Ex. I). As of January 4, 1999, Rose Louros had an account balance of $251,385. She instructed Arnold Cyr to roll $201,382 into the "Liechtenstein program" and to wire $50,000 back to her account at a bank in Los Angeles, California. (Id., Ex. P).

As of January 31, 1999, Helen Louros had almost $141,000 on deposit. (Id., Ex. N). In an undated letter to Helen Louros, Ken Adler stated that Account #10 had been established for Helen Louros and that she had a balance of $140,372.31. He enclosed with the letter "an automatic funds transfer form . . . to move a set percentage of [depositor's] `HOLDING ACCOUNT' funds into [depositor's] `ACTIVE ACCOUNT,'" and stated that a welcome pack, withdrawal request form and pin code authorization form would be sent under separate cover. (Id., Ex. F).

In December 1998 or January 1999, the arrangement with VP Bank ended, allegedly because a prospective depositor had called VP Bank directly to question the existence and structure of the Global Trust Bank. (Id., Ex. D). VP Bank apparently "took offense" to this call and viewed it as a "major breach of security." (Compl. Ex. D). Thereafter, Sexton established a relationship with a trust at another Liechtenstein bank called Landesbank. (Id.). In a phone call among Sexton, Johnson and McGeever, Sexton stated that initially the funds would be deposited in a trust called P.B. Global Investments and would then be transferred to a new trust that Sexton would establish. (Id.). "[U]nder the new scenario, all funds would be deposited into one account and . . . [Adler and Wilkinson] would have to keep track of individual depositor's balances as a separate ledger until the new banking relationship was set up by Sexton." (Id.). Adler "was notified that he could no longer represent the entity as `Global Trust Bank'" and was instructed to change the paperwork. (Id.). The paperwork was changed to read "Global Trust Limited, Global Investments, Ltd.," and Adler continued to solicit new depositors.

Despite the fact that under the arrangement with Landesbank all the money would be deposited into one account, defendants repeatedly assured plaintiffs that their funds were deposited in individual accounts. On January 26, 1999, Adler faxed a memorandum to Rose and Helen Louros which stated that the Global Trust Management Team had established the Global Trust Limited Bank d/b/a Global Investments, Ltd.; that the bank was "a trust affiliate of Landesbank;" that plaintiffs funds were deposited in separate accounts; and that all deposits were guaranteed, dollar for dollar. (Compl. ¶ 26(g)(i)-(vi); id., Ex. E). On or about February 17, 1999, Cyr and Adler met with Rose Louros in New York to solicit her participation in high yield investment programs. (Id. ¶ 20). In February 1999, in a telephone call to Rose Louros, Johnson and McGeever reiterated that her funds were on deposit in an individual, separate account; that her funds were 100% guaranteed; that they would be used for a high yield investment program; that plaintiff had sole control over her account; and that her funds would not be moved without her express written permission. (Id. ¶ 26(d)).

According to Johnson and McGeever, in January 1999, Landesbank started rejecting wire transfers allegedly because "once again, someone had contacted the bank and/or sent a letter or documentation which caused the bank to discontinue deposits." (Id., Ex. D). By letter dated February 10, 1999, the Global Trust Management Team notified depositors that "the trade [the Management Team] authorized ran into problems having to do with [the Liechtenstein] privacy laws." (Compl., Ex. K). Defendants further stated, however, that the problems had been corrected and that they "ha[d] found the proper path to take and . . . ha[d] committed to a trade, which should start in the next seven to ten business days." (Id., Ex. K). The letter concluded with a request for patience and cooperation as defendants tried to resolve the situation.

You are a valued participant and your patience, cooperation and understanding are greatly appreciated! All of the trial and tribulations, which we have gone through, are for your benefit. Once again, I ask you to hang in there. . . . The reward is just around the corner and I am sure you will be pleased.

(Id.) (ellipses in original). There is no allegation that any trade was ever consummated.

On March 14, 1999, Wilkinson sent a letter to depositors explaining that an eight-week program the Management Team had thought was a "tremendous opportunity" had "changed dramatically." (Id., Ex. Q).

Unfortunately, all promises of a contract have fallen short and the behavior of several of the Facilitating Group*fn3 representatives has been less than professional in addition to being outright unethical. . . . Due to the constant misrepresentations by the Facilitating Group of this Program, should you receive a contract from this Facilitating Group, please know that we do not endorse, recommend [or] support it in any way.

(Id.). Wilkinson then stated that the Management Team had located another program, "which we believe will meet the goals and objectives of all Participants" and if participants are interested, "efforts will be made with the Trading Group*fn4 to the [sic] accept [participants'] previously submitted paperwork."

(Compl., Ex. Q). The letter concluded:

We look forward to doing out best on your behalf and we know that you rely on us to be both ethical and professional. Please know that this situation, while not normal, is becoming more prevalent within our business. We will continue to fight all unethical behaviors and when applicable, will report our findings to the various governmental authorities for their review and subsequent action. . . . Thank you for your confidence and trust. We pledge to do our best on your behalf.


At the same time, in March 1999, Sexton suggested that an independent audit be performed on the deposits. Wilkinson arranged for an accounting firm he knew to conduct the audit. (Id., Ex. D). The firm sent affidavits to all depositors to complete, have notarized and return to the firm. (Id.).

However, when a depositor allegedly called the firm asking questions, it "caused [the firm] to become nervous about continuing the audit." (Id.). Wilkinson then arranged through Sexton to have an accounting firm in Liechtenstein do the audit.

On March 22, 1999, Adler faxed a letter to Helen Louros (who subsequently faxed it to Rose Louros) stating that the affidavits have been forwarded to the "Audit Group" in Liechtenstein and that a meeting would be held on March 25, 1999 with "all the relevant parties involved with the return of funds, including Landesbank." (Compl., Ex. L).

On March 29, 1999, Adler again faxed a letter to Helen Louros explaining that the current situation

has been caused by one individual. This individual represented one entity, which deposited funds into Global. The laws of Liechtenstein are quite clear with respect to privacy in banking and the contact by this individual has caused enough concern on the part of Landesbank that Landesbank has taken full control of all funds, pending the outcome of an independent audit and investigation.

(Id., Ex. M). The letter further assured the depositors that "[a]ll funds are safe and the matter will be resolved." (Id.).

However, the letter cautioned depositors not to contact

Landesbank directly as this would probably create additional delays. Remember, that the Laws of Liechtenstein are quite clear with respect to privacy in banking. That is why a single individual was able to create this situation in the first place. . . . Additionally, remember that we have identified the individual who created this mess and we intend to release his information to all participants at the appropriate time.

(Id.). Further, in "numerous" telephone calls during March, April and May 1999, Arnold Cyr, Douglas Johnson and Kevin McGeever repeatedly stated that plaintiffs' funds were on deposit in Liechtenstein, were safe and would be returned. (Id. ¶ 26(o)).

Finally, when Wilkinson attempted to get information from Sexton about another meeting with the bank allegedly held on April 5, 1999, Sexton refused to have further contact with Wilkinson and told him "that if [Wilkinson] had any other questions to call [Sexton's] lawyer." (Compl., Ex. D). When Johnson and McGeever tried to contact Sexton, he told them that Wilkinson knew everything he knew and that Johnson and McGeever should speak to Wilkinson or Sexton's lawyer. (Id.).

Thereafter, Wilkinson told Johnson and McGeever that they should direct further communications to Wilkinson's attorney. (Id.).

On April 30, 1999, Johnson and McGeever signed a statement setting forth the details of the Global Trust Management Team transaction. See id. Plaintiffs filed a complaint on March 22, 2000. An amended complaint was filed on July 20, 2000. A second amended complaint was filed on September 12, 2000, and a corrected second amended complaint, the subject of this motion, was filed on October 12, 2000.



In deciding a motion to dismiss, I must view the Complaint in the light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 237 (1974); Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 562 (2d Cir. 1985). I must accept as true the factual allegations stated in the Complaint, Zinermon v. Burch, 494 U.S. 113, 118 (1990), and draw all reasonable inferences in favor of plaintiff, Scheuer, 416 U.S. at 236; Hertz Corp. v. City of New York, 1 F.3d 121, 125 (2d Cir. 1993). A motion to dismiss can only be granted if it appears beyond doubt that plaintiff can prove no set of facts in support of its claim which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957).


Defendants contend that plaintiffs allege fraud in the purchase of securities through a "high yield investment program" as the basis of their Racketeer Influenced and Corrupt Organizations ("RICO") claim and, therefore, this claim is barred by 18 U.S.C. § 1964(c). Section 1964(c) states in relevant part:

Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue thereof . . . except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.

In the Complaint, plaintiffs allege upon information and belief that in 1997 Cyr and a woman named Laurie Stonebreaker "solicited individuals throughout the United States and/or New York State to enter high yield investment programs known as trading programs." (Compl. ¶ 91). In July 1998, Cyr allegedly solicited Rose Louros to wire approximately $70,000 to a trust account called "Investbada" in Utah in order to participate in a trading program. (Id. ¶ 94). Plaintiffs further allege that in October 1998, Cyr "induced [Rose Louros] to wire approximately [another] $40,000 to an account designated by . . . Cyr to enter the trading program." (Id. ¶ 95). Cyr then allegedly induced Rose Louros to roll over "the principal and profit she allegedly obtained from the trading program into the Global Trust Management Team's Liechtenstein program." (Id. ¶ 97).

Plaintiffs claim that these acts constitute a pattern of racketeering under 18 U.S.C. § 1961(1)(d) and (5) and as a result defendants violated the RICO Act pursuant to 18 U.S.C. § 1962.

Plaintiffs' RICO claim cannot be sustained. As a preliminary matter, only defendant Arnold Cyr and an individual who is not a party to this action are alleged to have violated the RICO statute based on actions taken before the incidents at issue here. In addition, the structure of the investment program described in Claim Ten is distinctly different from the Liechtenstein banking scheme. In any event, plaintiffs fail to allege a RICO violation.

In contravention to § 1964(c), plaintiffs base their claim on an alleged fraud in the purchase of securities. While § 1962 does not define "security," the Securities Exchange Acts of 1933 and 1934 define a security to include an "investment contract." 15 U.S.C. § 77b(a)(1); 15 U.S.C. § 78c(a)(10).

[A]n investment contract . . . means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from efforts of a promoter or third party. . . . [The definition] embodies a flexible rather than a static principle, one that is capable of adaptation to meet countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.

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