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Marchak v. JPMorgan Chase & Co.




Case Number : 11-CV-5839 MKB

Date filed : 2/6/15 State : New York


  • Background : The plaintiff, in this case, is Alexander Marchak and the defendants are JPMorgan Chase & CO., JPMorgan Chase Bank N.A., M&T Bank Corporation, HSBC North America Inc. HSBC Bank USA, N.A., and TD Bank, N.A. This case comes from the Ponzi scheme that was carried out by Philip Barry and was allegedly enabled by the defendants. Barry operated the Leverage Group, Leverage Option Management Inc., and Northern American Financial Services which promised their clients that if they invested or maintained their investments with them, they were guaranteed an annual rate of return of 12.55%. This scheme was operated from January 1978 through February 2009. Barry would place the client's money into accounts opened with the defendants and would conduct large dollar transactions by check and made routinely large cash withdrawals. He had written at least 1,623 checks between the years 2004 and 2009. The scam involved telling the clients that their funds would go to trade-in options or other securities but instead would use the funds for their personal expenses and to meet withdrawal demands from investors.

  • Plaintiff Argument : The defendants are alleged of breaching various obligations under federal banking regulations which include anti-money laundering (“AML”) rules found in *203 Section 352 of the United States Patriot Act rules imposed by the Bank Secrecy Act (“BSA”). They are also alleged of failing to fully comply with regulatory duties to institute programs to “know your customer” (“KYC”) to monitor the accounts and activities of Barry to ensure that appropriate actions were taken when evidence of illegal activities in the accounts were apparent. Because of their failure to uphold their duties, they enabled and facilitate significant financial fraud.

- Knowing participation in a breach of trust

- Aiding and abetting fraud

- Aiding and abetting breach of fiduciary duty

- Aiding and abetting conversion

- Unjust enrichment

- Fraud on the regulator

- Negligence

  • Defendant Argument : Plaintiffs’ claims are precluded by SLUSA or are removable pursuant to 28 U.S.C §§ 1441 and 1331 since the plaintiffs’ claims present federal questions arising under the laws of the United States. The defendants argue that the claims fall under class action since there are at least 50 plaintiffs with common issues of law and the complaint does not distinguish between them. The claims of the plaintiffs seek only to enforce duties or obligations allegedly created by and arising directly under these federal laws. The complaints contain numerous allegations about securities investments and that the plaintiffs were deceived into investing in Leverage with promises to invest their money in exchange-traded stock options of exchange-registred companies. The securities involved were not deposits to a bank account but rather a falsely promised option. Purchasing, sale, or holding of actual “covered securities” is not required for an action to come within SLUSA’s (Securities Litigation Uniform Standards Act) preview. Barry suggested to investors that their money would be invested in “opinions and securities”, so his failing to purchase any securities does not take this case outside of SLUSA’s purview as defined in Troice. Herald II, 753 F.3rd at 113. The plaintiffs’ claims are unable to stand alone without referencing Barry’s fraud and the supposed knowledge of that fraud that the defendants had which satisfies the material misrepresentation or omission requirement. Judge Verdict: Since the requirements of SLUSA have been met for each cause of action, the complaint was removed from the court and the court denies the plaintiffs’ motion to remand and dismissed the complaint in its entirety.

  • Securities Litigation Uniform Standards Act : A federal law in the United States that deals with private class action lawsuits conversing securities fraud. SLUSA modified sections of the Securities Act of 1933 and the Securities Exchange Act of 1934 to prevent specific class actions claiming fraud under state law related to the buying or selling of securities. As a result, these lawsuits are not permissible in state or federal courts.

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