HSBC Wins Motion to Dismiss Purported Nationwide Class of BLMIS Investors

September 15, 2016

On September 15, 2016, HSBC’s motion to dismiss a complaint filed on behalf of a proposed nationwide class of investors in Bernard L. Madoff Investment Securities LLC against various HSBC affiliates was granted on the grounds that the United States District Court for the Southern District of New York lacked personal jurisdiction and the plaintiffs’ claims were barred by the Securities Litigation Uniform Standards Act (SLUSA).

The lead plaintiffs, who were direct investors in BLMIS and had no relationship with HSBC, claimed that the HSBC defendants perpetuated Madoff’s Ponzi scheme by serving as the administrators and custodians for certain BLMIS “feeder” funds. The plaintiffs sought to recover under theories of aiding and abetting fraud, aiding and abetting breach of fiduciary duty, aiding and abetting conversion, and unjust enrichment.

In granting the motion to dismiss, U.S. District Judge Laura Taylor Swain found that the foreign HSBC defendants’ alleged communications with New York-based BLMIS and the transmittal of monies into New York to ensure compliance with contracts negotiated and executed outside of New York were insufficient to establish specific personal jurisdiction over those defendants, and that other general allegations that the foreign HSBC defendants marketed structured products, thereby increasing the flow of money to BLMIS, were likewise insufficient to establish specific personal jurisdiction. Judge Swain also rejected plaintiffs’ agency theory of personal jurisdiction, emphasizing that the foreign HSBC Defendants did not exercise control over either Madoff or BLMIS.  Finally, Judge Swain dismissed the claims against the only U.S.-based defendant, HSBC Bank USA, N.A., pursuant to SLUSA, finding that the plaintiffs’ claims were squarely precluded by the statute as interpreted by governing precedent, which bars certain class actions alleging state law claims based on misrepresentations or omissions of material facts in connection with the purchase or sale of national exchange-traded securities.

The plaintiffs have not yet indicated whether they intend to appeal the decision to the Second Circuit.