fee from Edwards to relay information and solve problems that
arose in certain accounts. (Id. at ¶ 126). The three companies
controlled by Edwards and her husband engaged in no lawful
business. Instead, after opening BONY accounts for the
companies, Edwards and her co-conspirators used the proprietary
electronic banking software provided by BONY to move money
freely in and out of the accounts. (Id. at ¶ 128). Edwards
admitted that she and her husband received more than $1.8
million in commissions pursuant to their participation in the
conspiracy, which lasted from late 1995 until 1999. (Id. at ¶
131; Pl. Rep. at 23).
3. Breaches of Fiduciary Duty
In addition to the illegal activities described above,
plaintiffs also allege that the director defendants "failed to
fully inform themselves to the extent reasonably appropriate
under the circumstances as they ignored multiple, specific
warnings issued by governmental, regulatory, and private
security forces that the Russian banking system was being
infiltrated by organized crime-a fact recognized by other banks
in the United States, which began to scale down their Russian
operations." (Am. Compl. at ¶ 193). For example, In 1996,
Russian Central Bank officials notified BONY executives of
specific ongoing investigations of several of their
correspondent bank customers for internal investigation. (Id.
at ¶ 138). Plaintiffs detail similar alerts from Russian,
American and other international sources throughout the 1990's.
(Id. at ¶ 123). Plaintiffs also discuss many media reports of
corruption in the Russian banking industry, including a May 15,
1994 New York Times article reporting that "most of the 2,000
new commercial banks licensed in Moscow in the previous eighteen
months were fronts for the illegal transfer of money." (Id. at
Only in 1999 did the director defendants form an Anti-Money
Laundering Oversight Committee ("AMLOC"). (Id. at ¶ 169).
AMLOC's review was limited to "a fraction" of the thousands of
Russian banks holding corresponding accounts at BONY. (Id. at
170). Ultimately, the defendants failed "to implement and
enforce an adequate compliance system or to adequately oversee
the development of the business in derogation of their duties to
implement compliance controls." (Id. at ¶ 193).
B. Proceedings in This Court
This case has now been active for more than two years.
Originally, five plaintiffs brought shareholder derivative
actions against BONY and nineteen of its former or current
officers and directors in this Court. Plaintiffs Mildred and
Edward J. Kaliski (the "Kaliskis"), Rita Hochenbaum, and
Rochelle Phillips filed one action on September 23, 1999, and
Charles Beck filed another action on October 18, 1999. The cases
were consolidated on August 31, 2000. On September 1, 2000, the
Kaliskis filed an Amended Complaint, which Hochenbaum, Phillips,
and Beck did not join. The Kaliskis purchased 61 shares of BONY
stock on July 21, 1998, just 14 months before they filed their
original complaint. Following a stock split, the 61 shares
became 122 shares. The Kaliskis continue to own 122 shares of
The parties have engaged in extensive discovery. The parties
in this action and the parties in the state court action have
been cooperating in discovery and taking at least some
depositions on a joint basis. BONY served its first requests for
the production of documents on plaintiffs' counsel on November
30, 2000; those requests included a request for documents
relating to plaintiffs' ownership of BONY stock. Plaintiffs did
not, however, produce
documents disclosing the date of the Kaliskis' stock purchase
until March 29, 2001. Plaintiffs did not confirm that the 122
shares purchased on July 21, 1998 were the only BONY shares held
by the Kaliskis until July 20, 2001. On August 24, 2001, at a
pre-trial conference, plaintiffs confirmed that they did not
purchase any BONY stock until July, 1998.
The nominal defendants and individual defendants Galitzine and
Kotov have filed separate motions to dismiss the amended
complaint for lack of standing. Individual defendants Renyi,
Papageorge, and Bacot join in the motions.
C. Proceedings in State Court
On October 28, 1999, Gilbert Katz filed a derivative action
against BONY in the Supreme Court of the State of New York, New
York County. Katz owns 20,000 shares of BONY stock, and has
owned at least a portion of that stock since 1985. (Frohock
Aff., Ex. C). In his amended complaint, Katz alleges, in
pertinent part, that "defendants abused the trust placed in them
as officers and/or directors of the holding company" and BONY
(1) pursuing Russian banking business through persons
who they did not properly supervise with the
implementation of adequate policies and procedures;
(2) failing to ensure appropriate due diligence on
the Russian entities with which TBNY established
banking relationships in light of news and
information that had been and still is widely
disseminated concerning the criminal activities and
enterprises throughout Russia; (3) failing to appoint
a committee of Board members charged with preventing
TBNY from participating in wrongful activities like
those alleged herein.
(Frohock Aff. at Ex. D).
In short, Katz's complaint arises from the same alleged
misconduct as that alleged in this case. Moreover, Murray
Zucker, also a shareholder, filed a derivative action in New
York Supreme Court on March 23, 2000.
A. Fed.R.Civ.P. 23.1 and N.Y. Bus. Corp. Law § 626(b)
Both Federal and New York law require that shareholders own
stock in the corporation at the time that the complained-of
transaction occurred to have standing to bring derivative
actions. See Ensign Corp., S.A. v. Interlogic Trace, Inc.,
1990 WL 213085, *n.3 (S.D.N.Y. Dec. 19, 1990) (holding that
because both Federal law and New York law contain
contemporaneous ownership rules, resolution of the issue would
be "the same under either New York or Federal law").
Rule 23.1 provides, in pertinent part, that a complaint in a shareholder
derivative action must allege "that the plaintiff was a
shareholder or member at the time of the transaction of which
the plaintiff complains. . . ." Fed.R.Civ.P. 23.1. For a
plaintiff to have standing under New York law, it must "appear
that the plaintiff is such a holder at the time of bringing the
action and that he was such a holder at the time of the
transaction of which he complains." N.Y. Bus. Corp. Law §
As Judge Sand explained in Ensign: "The policies underlying
the requirement are twofold: (1) to prevent potential derivative
plaintiffs from `buying a lawsuit' by purchasing stock; and (2)
to insure that derivative actions are brought by shareholders
who have actually suffered injury and have an interest in the
outcome of the case." Ensign, 1990 WL 213085, at *2 (citations
Some courts have found a limited exception to the
contemporaneous ownership requirement. The Fifth Circuit has
that in cases "where the complaint charged continuing wrongs,
occurring at the time plaintiff owned stock, the complaint
should not be dismissed on defendant's contention that the
claims actually arose prior to the time plaintiff acquired his
stock." Bateson v. Magna Oil Corp., 414 F.2d 128, 130 (5th
Cir. 1969) (citations omitted). As set forth by the Delaware
Court of Chancery in Chirlin v. Crosby, 1982 WL 17872 (Del.Ch.
1982), the appropriate test in such situations is "whether the
wrong complained of is in reality a continuing wrong or one
which has, in effect, been consummated. In other words, although
in one sense every wrongful transaction constitutes a continuing
wrong to the corporation until remedied, the determinative issue
is when the specific acts of alleged wrongdoing occur, and not
when their effect is felt." Chirlin, 1982 WL 17872, *2.
The continuing wrong doctrine "has not been universally
adopted by the federal courts, and it has been invoked sparingly
by those courts that have adopted it." Ensign, 1990 WL 213085,
at *3 (citation omitted). In addition, "a stranger to the
corporation who buys stock with knowledge of the alleged wrongs
may not maintain a derivative action even if the wrongs
complained of are continuing wrongs." Leventhal v. Haehl, 1989
WL 55972, *2 (N.D.N.Y. May 26, 1989) (quoting Magna Oil, 414
F.2d at 131).
B. Defendants' Motion to Dismiss
The continuing wrong doctrine will not be invoked and
defendants' motions to dismiss will be granted, for the
following reasons: (1) all relevant acts of wrongdoing occurred
before the Kaliskis purchased their stock on July 21, 1998; (2)
the continuing wrong doctrine, which is to be applied
"sparingly," if at all, ought not to be invoked here; (3) the
circumstances strongly suggest that the Kaliskis purchased their
shares to "buy" a lawsuit or, at a minimum, that they have not
suffered a significant injury and do not have a representative
interest in the case, and (4) the shareholders and the
derivative plaintiffs will not be prejudiced by a dismissal of
this case because parallel litigation is pending in state court.
First, plaintiffs allege a wide-ranging course of criminal
conduct encompassing many individual transactions, but the
complaint reveals that all relevant acts of wrongdoing occurred
before plaintiffs purchased their stock on July 21, 1998. The
only allegations in the complaint that could possibly be
construed as occurring after July, 1998 are plaintiffs'
allegations about MIB. Plaintiffs state that the meetings among
Gurfinkel, Kotov, and senior executives of MIB began in 1996 and
continued for "several years thereafter." Given that the
critical facts occurred before 1998, merely tacking on the words
"several years thereafter" to 1996 is insufficient to confer
standing on plaintiffs.
Second, even when considered through the lens of the
continuing wrong doctrine — and it is unclear whether the
doctrine is the law of this Circuit — plaintiffs' claims still
fail for lack of standing.*fn1 In their reply papers,
plaintiffs attempt to disguise the fact that the supposed "acts"
of wrongdoing that occurred after July 21, 1998 are either
effects of prior wrongdoing or separate incidents altogether.
Specifically, plaintiffs argue that the following evidence shows
that there was continuing wrongdoing after the Kaliskis'
• BONY's opening of a correspondent account for
Standard Investments, Nauru, in late 1998 despite
the lack of money laundering control in Nauru;
• The failure of BONY to close profitable
correspondent accounts even after the scandal became
public and AMLOC was formed in 1999;
• Suspicious wire-transfer data after July, 1998;
• The Bank's attempts to downplay the scandal; and
• The misconduct detailed in Edwards's guilty plea.
(Pl. Rep. at 11-23).
Plaintiffs' efforts fail. Certainly, the alleged misdeeds of
BONY's officers and directors in the early and mid-1990's had
ripple effects into the later part of the decade, and there were
individuals such as Edwards who continued her mischief long
after the central misconduct had ceased. But the very arguments
set forth in plaintiffs' amended complaint make it very clear
that the thrust of the money laundering conspiracy occurred from
1992 until 1996. Furthermore, neither plaintiffs' complaint nor
plaintiffs' reply portrays Edwards's misconduct as necessarily
related to the misconduct begun by BONY's push into Russian
correspondent banking. Finally, the few specific post-July 1998
events referenced in plaintiffs' memorandum of law clearly are
more in the nature of the effects of wrongdoing rather than
independent acts of wrongdoing. If the continuing wrong doctrine
is to be applied at all, it is to be invoked "sparingly." It
ought not to be invoked in the circumstances here.
Third, the Kaliskis do not fairly represent the shareholders
who have been injured by the alleged wrongdoing. The media
influence that plaintiffs use as support for their claims
actually works against them by suggesting that plaintiffs'
purchase of BONY stock was the purchase of a lawsuit, nothing
more. In the amended complaint, plaintiffs emphasize that the
overwhelming amount of press coverage regarding illegal activity
in the Russian banking industry during the 1990's should have
caused BONY to refrain from expanding into Russian
banking.*fn2 Plaintiffs cite a 1994 New York Times article
as evidence that "the dangers of doing business in Russia were
well known to the director defendants." (Am. Compl. at ¶ 9).
Plaintiffs also emphasize that there were "innumerable press
reports of corruption in the Russian banking industry" in 1996
and 1997. (Id. at ¶ 147-8).
Regardless of what these media reports suggest about
defendants' guilt, they certainly support the inference that the
Kalitskis' purchase of stock was an attempt to purchase a
lawsuit. Plaintiffs only bought 61 shares of BONY stock, and
they did not do so until July, 1998. Thus, their purchase took
place after all or virtually all of the wrongdoing had occurred,
and after the same press reports cited had informed the
plaintiffs of a potential cause of action.*fn3
In Leventhal the court granted defendants' motion to dismiss
under Rule 23.1 where plaintiff purchased his stock almost two
weeks after the announcement of the commencement of a prudence
investigation. Leventhal, 1989 WL 55972, *2. The Court noted
that "in such a situation, even on a motion to dismiss, the
Court may impute to the plaintiff knowledge of the continuing
harm of which he complains." Id. (citation omitted). The same
logic applies to the Kaliskis.
According to defendants' calculations, the Kaliskis' current
122 shares equal only 0.000007625 percent of BONY's outstanding
shares. (Def. Mem. at n. 9). Moreover, because the Kaliskis did
not purchase their stock until well after all or most of the
wrongdoing had occurred and unfavorable reports had been
publicized, presumably the price of the stock was already
depressed. See Bangor Punta Operations, Inc. v. Bangor &
Aroostoock R.R. Co., 417 U.S. 703, 715-16, 94 S.Ct. 2578, 41
L.Ed.2d 418 (1974). These circumstances underscore the point
that the Kaliskis hardly suffered significant injury because of
their stock ownership. Certainly, they have not suffered — if
they have suffered at all — to the same extent as shareholders
who have owned their BONY stock since before the alleged
Finally, plaintiffs have not shown that any prejudice will
result from dismissal of the amended complaint in this case.
Derivative plaintiffs are pursuing nearly identical claims on
behalf of BONY in state court. Katz has owned stock in BONY
since January, 1985, and he owns substantially more than 122
shares — 20,000 shares worth $792,400.00 as of August 30, 2001.
(Def. Mem. at 20). Plaintiffs in the state court proceeding are
represented by experienced counsel. (Frohock Aff., Ex. D, ¶¶
55-59, 63-68). For these reasons, the Company, BONY, and their
shareholders would not be prejudiced by dismissal of the
Kaliskis' claims in this case.
C. Norman Drucker's Motion to Intervene
Proposed plaintiff A. Norman Drucker, a resident of Florida,
owns 2,304 shares of Company stock. He has been a shareholder in
the Company since 1989. While Drucker did own stock during the
relevant time period, his motion is denied as untimely.
Under Federal Rule of Civil Procedure 24(a)(2), "to intervene
as of right . . . an applicant must (1) timely file an
application, (2) show an interest in the action, (3) demonstrate
that the interest may be impaired by the disposition of the
action, and (4) show that the interest is not protected
adequately by the parties to the action." New York News Inc. v.
Kheel, 972 F.2d 482, 485 (2d Cir. 1992) (citation omitted).
"Failure to satisfy any one of these requirements is a
sufficient ground to deny the application." Catanzano v. Wing,
103 F.3d 223, 232 (2d Cir. 1996) (quoting Farmland Dairies v.
Comm'r, 847 F.2d 1038, 1043 (2d Cir. 1988)).
The timeliness decision is flexible and is subject to the
district court's discretion. U.S. v. Yonkers Bd. of Educ.,
801 F.2d 593, 594-5 (2d Cir. 1986); see also U.S. v. Pitney Bowes,
Inc., 25 F.3d 66, 70 (2d Cir. 1994). "The length of time the
applicant knew or should have known of his interest before
making the motion" is one of the most important factors to be
considered in determining the timeliness issue. Catanzano, 103
F.3d at 232. As the Second Circuit has noted, "timeliness defies
precise definition." Pitney Bowes, 25 F.3d at 70. Among the
factors to be considered are "(1) how long the applicant had
notice of the interest before it made the motion to intervene;
(2) prejudice to existing parties resulting from any delay; (3)
prejudice to the applicant if the motion is
denied; and (4) any unusual circumstances militating for or
against a finding of timeliness." Id., 25 F.3d at 70 (citation
This lawsuit has been pending for more than two years, and has
garnered no small amount of media attention. (De Leeuw Aff., Ex.
D). Hence, Drucker has had notice of this action for some time.
Shorter delays have often been deemed untimely. See Catanzano,
103 F.3d at 232-33; see also Pitney Bowes, 25 F.3d at 71. The
shareholders and the nominal defendants will not be prejudiced
because their interests will be protected in the state court
proceedings as well. Drucker will not be prejudiced because his
interests will be protected in the state court proceedings.
Finally, the unusual circumstances of this case militate against
a finding of timeliness. All that transpired when the Kaliskis
were the only plaintiffs is now rendered suspect because they
were not proper plaintiffs. The addition of Drucker now — two
years after the fact — will not eliminate those concerns. See
generally Cohen v. Bloch, 507 F. Supp. 321 (S.D.N.Y. 1980)
(granting dismissal where plaintiffs personal commitment to the
action was doubtful and it appeared that plaintiffs counsel —
who was also the husband of plaintiffs stepdaughter — was the
truly interested party).
Defendants' motion is granted. Plaintiffs' cross-motion is
denied. The amended complaint is hereby dismissed, without
prejudice to the shareholders' claims in the pending state court
proceedings. The Clerk of the Court shall enter judgment