Plaintiffs are hedge funds that invested in the Rye Select Broad Market XL Fund, L.P. and the Rye Select Broad Market Portfolio Fund, L.P. (collectively, the "XL Funds"), two hedge funds managed by defendant Tremont Partners, Inc. The returns for these funds were linked to the performance of other hedge funds that were managed by Bernard Madoff. Plaintiffs ultimately lost their entire investments when Madoff's Ponzi scheme was revealed.
Plaintiffs bring claims under the federal securities laws, as well as state law claims of fraud, negligence, and breach of fiduciary duty. The court has already dismissed claims brought by plaintiffs against the auditors of the XL Funds. This ruling was affirmed by the Court of Appeals on July 10, 2012. Meridian Horizon Fund, LP v. Tremont Group Holdings, Inc., 747 F. Supp. 2d 406, 409 (S.D.N.Y. 2010) aff'd sub nom. Meridian Horizon Fund, LP v. KPMG (Cayman), 11-3311-CV, 2012 WL 2754933 (2d Cir. July 10, 2012).
Defendants move to dismiss the remaining counts for failure to state a claim. The motion is denied.
The following allegations are taken from the Amended Complaint ("complaint") and the documents on which it relies. For purposes of these motions, these allegations are assumed to be true.
Plaintiffs are divided into two groups depending on the funds in which they invested, "Onshore Plaintiffs" and "Offshore Plaintiffs."
The Onshore Plaintiffs include Meridian Horizon Fund, L.P., Meridian Horizon Fund II, LLP., and Meridian Diversified Fund, LP., all limited partnerships organized under the laws of the State of Delaware. They invested in the Rye Select Broad Market XL Fund, L.P. ("XL Onshore"), a Delaware limited partnership.
The Offshore Plaintiffs are Meridian Diversified Fund, Ltd., Meridian Diversified ERISA Fund, Ltd., Meridian Diversified Compass Fund, Ltd., and Meridian Absolute Return ERISA Fund, Ltd., companies incorporated under the laws of the Cayman Islands. They invested in the Rye Select Broad Market XL Portfolio, Ltd. ("XL Offshore"), a hedge fund organized as a Cayman Islands company.
The XL Funds did not directly invest with Madoff. Rather, the XL Funds were set up in such a way that their returns were tied to the economic performance of hedge funds (the "Reference Entities").
The stated objective of XL Onshore was to provide investors with long-term capital growth and a return based on three times leveraged exposure to the economic performance of the reference entity Rye Select Broad Market Fund, LP ("Onshore Reference Entity"). The stated objective of XL Offshore was the same as the objective of XL Onshore. XL Offshore used the Rye Select Broad Market Portfolio Ltd. ("Offshore Reference Entity") as its reference entity.
Defendant Tremont Partners, Inc. ("Tremont Partners") was the general partner and investment manager of XL Onshore as well as of its corresponding reference entity. There are no allegations in the complaint about a general partner for XL Offshore. However, Tremont Partners was the investment manager for XL Offshore.
Tremont (Bermuda) Limited ("Tremont Bermuda") is a company organized under the laws of Bermuda. It served as the investment manager for the XL Offshore fund's reference entity.
Tremont Group Holdings, Inc. ("Tremont Holdings"), is Tremont Partners' parent company. Collectively, Tremont Partners, Tremont Holdings, and Tremont Bermuda will ...