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Abreu v. Bank of America Corp.

August 6, 2008


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


Defendants Standard Chartered Bank ("Standard Chartered") and Bank of America Corporation and Bank of America, N.A.*fn1 ("collectively "BOA") (all, collectively, "Defendants") move pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure to dismiss the complaint filed by 94 individual plaintiffs*fn2 ("Plaintiffs") involving an alleged international money laundering scheme perpetrated by third parties who utilized bank accounts established at Standard Chartered and BOA.*fn3 For the reasons set forth below, Defendants' motions to dismiss are DENIED.

I. Background

A. Procedural Background

In their First Amended Complaint, Plaintiffs alleged four claims against Defendants: 1)aiding and abetting fraud, 2)aiding and abetting breach of fiduciary duty, 3)commercial bad faith, and 4)unjust enrichment. Defendants moved to dismiss all four counts of their complaint. Mazzaro De Abreu v. Bank of America Corp., 525 F.Supp.2d 381 (S.D.N.Y. 2007)(hereinafter "Abreu I"). Defendants motion to dismiss Count III was denied. Defendants' motion to dismiss Counts I, II and IV were granted with Plaintiffs having leave to amend Count I with regard to the substantial assistance element of aiding and abetting fraud.

B. Facts*fn4

Familiarity with the facts set forth in Abreu I is assumed for the purposes of this decision. 525 F.Supp.2d 381. In Plaintiffs' Second Amended Complaint, several additional facts were alleged and are summarized herein.

Plaintiffs allege that Defendants substantially assisted in a fraudulent money-laundering scheme perpetrated by Bank of Europe, i.e., a shell bank with no capacity to perform basic transactions without the assistance of a correspondent bank. (SAC ¶¶ 5, 169.) Standard Chartered served as correspondent bank for Bank of Europe from July 1999 to late 2003. BOA served as correspondent bank for Bank of Europe from November 2003 to late 2004. The alleged scheme involved Plaintiffs investing in Bank of Europe's Loan Participation Program with the promises that their money would be "'loaned,' or made available to, the financially stable Banco Santos as part of a credit facility" and returned to them with interest upon a certain maturity date. (SAC ¶ 6.) The Plaintiffs' money was pooled into a single account at Standard Chartered and then BOA. Plaintiffs never got their money back. (SAC ¶ 7.) In 2006, Bank of Europe's owner, Edemar Cid Ferreira ("Ferreira"), was "convicted in Brazil for bank fraud, money laundering, criminal association, and conspiracy." (SAC ¶ 2.)

Plaintiffs allege that Ferreira used the funds from the Loan Participation Program for his own expenses rather than investing it in Banco Santos or any other "legitimate business purpose." (SAC ¶ 7; see also, SAC ¶¶ 8-14.) Plaintiffs additionally allege that Ferreira used the funds to transfer "hundreds of millions of dollars more to offshore companies controlled by Ferreira." (SAC ¶ 15.) All of these transfers, Plaintiffs allege, were performed by Standard Chartered and BOA with knowledge that they were "improper" and "illegitimate." (SAC ¶¶ 7-15.)

In 2001, Standard Chartered asked Amadeo Arcaro of Bank of Europe "to explain the Loan Participation Program." (SAC ¶ 31.) Arcaro told Standard Chartered that individuals "committed funds to Bank of Europe for the purpose of lending the funds to Banco Santos. In exchange, the customers were promised that Bank of Europe would return their money plus interest at a certain rate on a certain maturity date." (SAC ¶ 31.) Plaintiffs allege that Standard Chartered was made aware of a fiduciary relationship between Plaintiffs and Bank of Europe. A Standard Chartered Call Report stated that "Bank of Europe has been funding itself through deposits taken from and papers issued and sold to institutional investors and high net worth individuals." (SAC ¶ 33). In their internal "Customer History and Profile" for Bank of Europe, they described the bank's business as "Purchase/sale of securities, lending, private banking. The bank's main clients are made of corporate customers and high net work [sic] individuals." (SAC ¶ 32; see also, SAC ¶¶ 191,263.)

BOA allegedly knew the purpose of the Loan Participation Program. One month prior to opening Bank of Europe's account at BOA, Julie Schlossman from Bank of Europe, in providing the paperwork necessary to open the account, provided BOA with Bank of Europe's balance sheet, "listing loan participations as Bank of Europe's primary source of capital." (SAC ¶ 36.) A few weeks after the account was opened, the head of BOA's Sao Paulo branch in Brazil met with Schlossman and asked her about the Loan Participation Program. She informed him that "it was a program in which people deposited money to be loaned to Banco Santos, to receive the higher interest rate that Bank of Europe was able to offer because of the spread between Brazilian and American interest rates at that time" and that "the clients' money was to be returned on the maturity date with the accrued interest."

Despite their alleged knowledge of the purpose of the Loan Participation Program, Standard Chartered and BOA made transfers to art galleries, auction houses, members of Ferreira's family, art, book, map and photography dealers, and American Express. (SAC ¶ 10.)

Defendants also made transfers to "Brazilian black market currency traders known as 'doleiros,'" which were likewise outside the scope of the purpose of the Loan Participation Program. (SAC ¶ 43.) These "doleiros" included Lespan, Tanzy and Braza. (SAC ¶ 47.) At the time BOA was making transfers to the Lespan account, "BOA knew . . . Lespan was at the center of Manhattan District Attorney's money-laundering investigation of BOA." (SAC ¶¶ 46, 47.) The investigation found that "'[m]any Brazilian money service businesses conducted illegal transmittal operations through the account of a Uruguayan money remitter at the office of Bank of America Corporation's subsidiary Bank of America, N.A. in Manhattan. From May 2002 to April 2004, more than $3 billion flowed through this account, originating in entities controlled by these black market currency traders, the owners of which are being prosecuted in Brazil for violations of Brazilian law." (SAC ¶ 48.) Tansy, S.A. was also "publicly identified as the facilitator of a major bank fraud in 2002" by serving as "the 'exchange house' with an account at BOA through which Brazilian investors were defrauded of tens of millions of dollars." (SAC ¶ 51; see also, SAC ¶ 44.)

Plaintiffs allege that Standard Chartered "knew that the transactions it was conducting for Bank of Europe posed significant liability risks." (SAC ¶ 210.) For this reason, "on November 22, 2002, Standard Chartered's Joanne McAndrew requested that the Bank of Europe account be assigned a 'HIGH' risk rating." (SAC ¶ 210.) Standard Chartered later admitted in a signed written agreement dated September 2004, that "less than nine months after it ceased its relationship with Bank of Europe . . . it had deficiencies in its handling of ...

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