Madoff Investors Win Class Cert. In Suit Against PwC, Citco
Law360, New York (March 04, 2015, 6:06 PM ET) — A New York federal judge on Tuesday again certified a class of investors accusing PriceWaterhouseCoopers LLP and Citco Group Ltd. of misleading them about the quality of feeder funds involved in Bernie Madoff’s Ponzi scheme after the Second Circuit vacated his previous decision in 2014.
The court said that classwide evidence established that the investors had allegedly relied on erroneous valuations and audit reports from Citco and PwC in choosing to invest in funds managed by Fairfield Greenwich Ltd., which included the single largest feeder fund involved in Madoff’s scheme.
The class of about 1,000 individuals and businesses lost at least $7.5 billion to the Ponzi scheme as a result of their investments with Fairfield Greenwich, court documents said.
U.S. District Judge Victor Marrero accepted the investors’ argument that their relationship with PwC and Citco was close enough to establish a “duty of care” under New York law.
Judge Marrero pointed to emails from Fairfield Greenwich to PwC stating that “investors have been requesting the audits for the past couple months” to show that PwC knew the plaintiffs were relying on its reports.
As for Citco, the judge said that its internal-procedures manual explicitly stated that shareholders and partners will make investment decisions based on its net asset value reports, and stressed the importance of producing correct, reliable and timely information.
The investors can also use common evidence to support their claims that Citco misled them by concealing its “grave doubts” about the funds’ assets, the judge said.
The Second Circuit said the district court certified the class based on claims against the Fairfield Greenwich funds without considering the investors’ claims against PwC and Citco, which acted as auditor and administrator to the funds, respectively.
After Madoff’s massive scheme unraveled in 2008, the funds created and managed by Fairfield Greenwich Group lost all of its investors’ money.
The investors sued the funds shortly thereafter and also brought claims against PwC and Citco, which weren’t directly involved with the investments but had serviced the funds.
In 2013, Judge Marrero approved the investors’ $80 million settlement with Fairfield Greenwich Group.
The following year, the Second Circuit rejected a challenge to that deal by PwC and Citco after finding they lacked standing.
The investors relied heavily on the reports from Citco and PwC, and they never would have put money into Fairfield Greenwich had they known that information they contained was incorrect, David Barrett, an attorney for the investors, told Law360 on Wednesday.
“It doesn’t matter what else you know, if that most basic statement is false you never would have made the investment,” Barrett said.
Representatives for PwC and Citco did not respond to requests for comment on Wednesday.
The investors are represented by David A. Barrett and Stuart H. Singer of Boies Schiller & Flexner LLP, Robert C. Finkel of Wolf Popper LLP, and Christopher Lovell and Victor E. Stewart of Lovell Stewart Halebian Jacobson LLP.
PwC is represented by Andrew M. Genser, Amy E. Crawford, Brenton Rogers, Emily Nicklin and Timothy A. Duffy of Kirkland & Ellis LLP.
Citco is represented by Walter Rieman, Allan J. Arffa, Andrew Garry Gordon, Brad Scott Karp and Leslie Gordon Fagen of Paul Weiss Rifkind Wharton & Garrison LLP.
The case is Anwar et al. v. Fairfield Greenwich Limited et al., case number 1:09-cv-00118 in the U.S. District Court for the Southern District of New York.
–Additional reporting by Stephanie Russell-Kraft, Brian Mahoney and Benjamin Horney. Editing by Jeremy Barker.