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AFFIDAVIT of Albert Y. Chang in Support Re: 191 JOINT MOTION To

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AFFIDAVIT of Albert Y. Chang in Support Re: 191 JOINT MOTION To Repex Ventures S.A v. Madoff et al Doc. 193 Att. 2 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ____________________________________ In re HERALD, PRIMEO and THEMA ) Civil Action No. 09 CIV 289 (RMB) (HBP) FUNDS SECURITIES LITIGATION, ) (Consolidated with 09 CIV 2032 and ) 09 CIV 2558) This Document Relates To: ) ) ECF Case Repex Ventures, S.A., etc. v. ) Bernard L. Madoff, et al. ) ____________________________________ ) In re HERALD, PRIMEO and THEMA Civil Action No. 09 CIV 289 (RMB) (HBP) FUNDS SECURITIES LITIGATION, (Consolidated with 09 CIV 2032 and 09 CIV 2558) This Document Relates To: ECF CASE Repex Ventures, S.A., etc. v. Bernard L. Madoff, et al. JURY TRIAL DEMANDED [PROPOSED] THIRD AMENDED CLASS ACTION COMPLAINT JURY TRIAL DEMANDED Dockets.Justia.com TABLE OF CONTENTS I. SUMMARY OF THE ACTION......................................................................................... 7 II. PARTIES .......................................................................................................................... 16 A. Plaintiffs............................................................................................................................ 16 B. The Herald Defendants ..................................................................................................... 16 C. The Bank Medici Defendants ........................................................................................... 20 D. S. Kohn’s Husband and Her Sham New York Businesses ............................................... 23 E. The Auditor Defendants.................................................................................................... 25 1. The E&Y Defendants.................................................................................................... 25 2. Madoff’s Auditors......................................................................................................... 26 3. The HSBC Defendants.................................................................................................. 26 4. The JPMorgan Chase Defendants................................................................................. 27 F. The Defendants Worked in Concert ................................................................................. 30 III. JURISDICTION AND VENUE ....................................................................................... 34 A. The HSBC Defendants........................................................................................................ 1 B. The JPMorgan Chase Defendants....................................................................................... 3 C. The E&Y Defendants.......................................................................................................... 4 D. Defendants’ Conduct Had a Substantial Effect on Commerce Both Internationally and in the United States ......................................................................................................................... 4 IV. NON-DEFENDANT BAD ACTORS ................................................................................ 7 V. FACTUAL ALLEGATIONS RE: RICO.......................................................................... 24 A. BMIS Operations.............................................................................................................. 24 B. Defendant Sonja Kohn...................................................................................................... 27 1. Sonja Kohn Early Investment Career ........................................................................... 27 2. Madoff Pays S. Kohn Secret Kickbacks....................................................................... 28 3. The Madoff-Kohn Enterprise Sustains the Ponzi Scheme............................................ 30 4. Sonja Kohn’s Early Business Dealings With Madoff and BMIS................................. 31 5. Sonja Kohn Creates Bank Medici................................................................................. 33 6. The Madoff-Kohn Feeder Fund Scheme in New York ................................................ 35 7. Sonja Kohn and Madoff Discuss the Herald Funds in New York City........................ 70 8. Defendant E. Kohn........................................................................................................ 71 i 9. Non-Defendant Kohn Family Members ....................................................................... 73 10. S. Kohn and Her Family Also Drew Stolen Money Directly from BMIS.................... 76 11. Injury caused to Plaintiffs and the Class’ Businesses and Property. ............................ 77 12. Sonja Kohn and Herald Asset Management’s Relationship......................................... 79 13. S. Kohn Foresees the Inevitable Collapse of BMIS ..................................................... 80 14. RICO Defendants’ Pattern of Racketeering Activity ................................................... 82 VI. Substantive RICO Allegations.......................................................................................... 83 A. Payments from Sham Entity Defendants to Kohn, Kohn Family Defendants, and Related Defendants: ............................................................................................................................... 86 B. Payments from Madoff to Erko, Kohn, and E. Kohn: ...................................................... 89 C. Payments from Madoff to Tecno Italy and Kohn:............................................................ 91 D. Payments from Madoff to Kohn and Tecno Gibraltar:..................................................... 93 E. Payments from BMIS to Kohn and Tecno Gibraltar: ....................................................... 94 F. Payments from BA Worldwide to Eurovaleur:................................................................. 96 G. Payments from HAML to Bank Medici and Medici Cayman:....................................... 101 H. Payments from HAML to APM Cayman: ...................................................................... 103 I. Payments from HAML to Bank Austria Cayman:.......................................................... 105 J. Payments between HAML, Bank Medici, and Pioneer:................................................. 106 K. Payments from HAML to Sofipo:................................................................................... 108 L. Payments from HAML to Mugnai, de Sury, and Cosulich: ........................................... 110 M. Kohn used HAML as a Slush Fund: ............................................................................... 111 N. Kohn Continued the Illegal Scheme After December 11, 2008: .................................... 112 VII. Additional FACTUAL ALLEGATIONS ....................................................................... 113 A. The JPMorgan Chase Defendants................................................................................... 113 1. JPMorgan Chase’s Herald (USA) Fund Investments and Divestment, and Investment Related Red Flags ............................................................................................................... 114 2. BMIS’ Account with the JPMorgan Chase Defendants, and BMIS Account Activity Related Red Flags ............................................................................................................... 121 B. The HSBC Defendants.................................................................................................... 131 1. Stock Trade Volumes.................................................................................................. 132 2. Option Trade Volumes................................................................................................ 134 3. Negative Cash Balances.............................................................................................. 136 ii 4. HSBC’s Internal Red Flags......................................................................................... 136 C. The E&Y Defendants...................................................................................................... 141 1. E&Y Operated As a Unitary International Professional Organization....................... 143 2. The E&Y Defendants Issued Unqualified (Clean) Audit Opinions ........................... 147 3. The 2007 Financial Statements................................................................................... 148 4. The E&Y Defendants’ Audits Knowingly Failed to Meet Luxembourg and International Standards, or Even E&Y’s Own Standards................................................... 149 5. The E&Y Defendants Failed to Verify the Existence of the Funds’ Madoff Investments 157 6. The E&Y Defendants Violated Its Duties to Herald (USA) Investors....................... 159 7. The E&Y Defendants’ Audit Violated E&Y’s Own Standards ................................. 161 D. Defendants’ Materially False and Misleading Statements ............................................. 164 1. Herald (LUX) Prospectuses ........................................................................................ 168 2. Herald (LUX) Unaudited Semi-Annual Report and Financial Statement .................. 172 3. Herald (USA) Offering Memorandum........................................................................ 173 4. Herald (USA)’s Audited Annual and Unaudited Semi-Annual Reports and Financial Statements ..........................................................................................................................
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