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February 13, 2002


The opinion of the court was delivered by: Sweet, D.J.


Defendant SG Cowen Securities Corp. ("SG Cowen") has moved to dismiss the First Amended Complaint (the "Amended Complaint") of plaintiff Theodore Rozsa ("Rozsa") pursuant to Rule 12(b)(6), Fed.R.Civ.P. For the reasons set forth below, the motion is granted.

Prior Proceedings

This action was commenced on March 27, 2001 by the filing of a complaint. SG Cowen moved against that complaint which was dismissed by an opinion of August 1, 2001, reported at 152 F. Supp.2d 526 (S.D.N.Y. 2001) ("Rozsa I").

The Amended Complaint

The allegations as stated in the Amended Complaint are as follows.

Rozsa is an 86-year old Canadian citizen and resident of Alberta, Canada. (Am. Compl. ¶ 1).

SG Cowen is a New York securities broker-dealer. (Id. ¶ 5).

Defendant May Davis Group, Inc. ("May Davis") is also a New York securities broker-dealer, and defendant Carl Corley ("Corley") was employed by May Davis. (Id. ¶¶ 2-3). SG Cowen purported to act as a clearing broker for May Davis, pursuant to undisclosed agreements with May Davis. Rozsa was not a party to any such agreements and was not informed about Cowen's status as a clearing broker. (Id. ¶ 5).

Defendant Thomas Baribeau ("Baribeau") is a resident of California; in 1999 Baribeau caused the incorporation of a Nevada corporation, the Aid for Humanity and Benevolence Foundation (the "Foundation"). (Id. ¶¶ 4, 8). Baribeau set up a brokerage account in the name of the Foundation at SG Cowen, and then used that account to defraud Rozsa of $5 million which Rozsa had entrusted to SG Cowen. (Id. ¶¶ 23-27).

In late 1999, Baribeau persuaded Rozsa to wire $5 million into a "`sub-account'" of the Foundation, over which Rozsa would be the recorded and beneficial owner and sole signatory. (Id. ¶ 9).

Baribeau informed Rozsa that the account would be invested in money market funds, unless Rozsa directed otherwise. Baribeau also stated that Rozsa's funds, and the funds of others, would be employed in "virtually riskless `program trading,'" involving foreign bank instruments, which would return profits of 15% per trade. (¶ 10). Baribeau also purportedly told Rozsa that SG Cowen would be the "depository" for his funds, and that May Davis was affiliated with or owned by SG Cowen. (Id. ¶ 12-13).

Similar contemporaneous statements were made by Baribeau to at least two other prospective depositors. (Id. ¶ 11).

On December 10, 1999, Rozsa signed a SG Cowen disclosure election and taxpayer identification form in order to open an account at SG Cowen which listed only Rozsa as owner of the account, and made no mention of the Foundation. Id. ¶ 12).

At the request of May Davis, SG Cowen opened a brokerage account in the name of the Foundation, No. HM10585711 (the "Account") based upon a "New Account Form" filled out by Corley of May Davis, who designated it as a "Master Account." (Id. ¶ 14). After Baribeau had informed Rozsa that May Davis was affiliated or owned by SG Cowen, Rozsa, as "owner" of the Account, signed and sent to May Davis a Form W-8 Certificate of Foreign Status on December 13, 1999. (Id. ¶ 13).

On or about December 14, 1999, May Davis on behalf of Rozsa proposed to SG Cowen that Rozsa's $5 million would be deposited in a "Sub-Account" of the Foundation, and submitted to SG Cowen forms prepared by Rozsa to accomplish that end. At about the same time, Corley sent to SG Cowen completed SG Cowen "New Account Forms" for proposed "Sub-Accounts" for two other prospective $5 million investors residing in Singapore and New Zealand, respectively. (Id. ¶ 15, Exs. C, D, E).

Also on December 14, 1999, Corley prepared and sent to SG Cowen a statement of the "Account Structure and Client Information" for the prospective Master (or Primary) Account and the three Secondary accounts. The Primary Account was in the name of the Foundation, listing Baribeau's name and California address; the Secondary Accounts were in the names of the three individual depositors, not the Foundation, and listed the individuals' addresses and foreign passport information for account signature purposes. (Id. ¶ 15).

On December 16, 1999, a person at SG Cowen allegedly advised May Davis that SG Cowen would not open any such "Secondary Account" or "Sub-Account" and directed that the funds belonging to Rozsa and the two other prospective depositors should be earmarked with the notation "FOR THE BENEFIT OF," followed by each depositor's name, and thus deposited in the Foundation's "Master Account" at SG Cowen. SG Cowen's instruction was conveyed to Rozsa through May Davis. (Id. ¶ 16).

On December 16, 1999, pursuant to SG Cowen's wire transfer instructions, Rozsa transferred $5 million by wire from Rozsa's account at a Calgary, Alberta branch of the Bank of Montreal to an account at the Bank of New York in the name of SG Cowen, "Ref: May Davis Group, for further credit to: Aid for Humanity and Benevolence Foundation, a/c HM10585711 FOR THE BENEFIT OF: Mr. Theodore Rozsa." (Id. ¶ 18).

On December 17, 1999, Corley faxed Rozsa a letter welcoming him to "The May Davis Group." The body of the letter stated in its entirety:

I would like to welcome you to The May Davis Group.

The May Davis Group is a full service investment banking brokerage firm, fully committed to providing our private and institutional clients with the highest level of investment management services.
Our objective is to help you build your net worth and manage risk. In doing so we can help you achieve your long-term goals. We have at our disposal proprietary analysis to develop the optimal risk/reward strategy for each client. We enjoy a broad capability to monitor market conditions, in order for you to take ...

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