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LOUROS v. CYR
April 17, 2001
HELEN LOUROS AND ROSE LOUROS, PLAINTIFFS,
ARNOLD CYR, LYNN CYR, DOUGLAS JOHNSON, KEN ADLER, JAMES SEXTON, KEVIN MCGEEVER AND H. FREEMAN WILKINSON DEFENDANTS.
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., ¶
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
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. ¶
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
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
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
(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
(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.
I. STANDARD UNDER 12(b)(6)
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).
II. RICO CLAIM (COUNT TEN)
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.