UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
RITCHIE CAPITAL MANAGEMENT, L.L.C.,
RITCHIE RISK-LINKED STRATEGIES
TRADING (IRELAND), LIMITED, RITCHIE
RISK-LINKED STRATEGIES TRADING
(IRELAND) II, LIMITED, WALKERS SPV
LIMITED, as trustee for Ritchie Risk-Linked
Life Strategies Trust I and Ritchie Life Strategies
Master Trust, and RITCHIE RISK-LINKED
STRATEGIES TRADING, LTD.,
Plaintiffs,
v.
COVENTRY FIRST LLC, THE COVENTRY
GROUP, INC., MONTGOMERY CAPITAL,
INC., LST I LLC, ALAN BUERGER,
CONSTANCE BUERGER, REID S.
BUERGER, ANTONIO MUNIZ, ALEX
SELDIN, NEAL JACOBS, EILEEN SHOVLIN,
and JIM DODARO,
Defendants
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07 Civ. 3494 (DLC)
ECF Case
REVISED MEMORANDUM OF LAW IN SUPPORT OF
PLAINTIFFS’ MOTION FOR RECONSIDERATION
AND FOR LEAVE TO FILE THEIR
PROPOSED SECOND AMENDED COMPLAINT
Lawrence S. Robbins (LR-8917)
Gary A. Orseck
Rachel S. Li Wai Suen
Daniel R. Walfish
ROBBINS, RUSSELL, ENGLERT,
ORSECK & UNTEREINER LLP
1801 K Street, N.W., Suite 411
Washington, D.C. 20006
Tel: (202)775-4500
Fax: (202)775-4510
Dated: August 24, 2007
Thomas P. Puccio
LAW OFFICES OF THOMAS P. PUCCIO
230 Park Avenue
New York, NY 10169
Tel: (212) 883-6383
Fax: (212) 883-6388
Counsel for Plaintiffs
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 1 of 56
i
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES.......................................................................................................... ii
INTRODUCTION .......................................................................................................................... 1
I. Breach of Fiduciary Duty: The Opinion Failed To Recognize That The
Contractual Disclaimer Of A Partnership Relation Cannot Possibly
Bind Non-Contracting Parties And, In Any Event, Did Not Constitute
A General Disclaimer Of A Fiduciary Relationship In This Case................................ 2
II. Fraud: The Opinion Failed To Consider Claims By And Against Non-
Contracting Parties And Overlooked Several Reasons Why The Fraud
Claims Do Not Duplicate The Contract Claims ........................................................... 4
III. Fraudulent Inducement: The Opinion Misapplied Controlling Law
And Misapprehended The Claims By And Against Entities Not Party
To The MPPAs ............................................................................................................. 7
IV. Personal Jurisdiction: The Court Overlooked That Montgomery
Capital, Inc. Is Subject To Personal Jurisdiction On Any Claim, A
Point Implicitly Conceded By Defendants ................................................................... 9
CONCLUSION............................................................................................................................. 10
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 2 of 56
ii
TABLE OF AUTHORITIES
Page(s)
CASES
Bagdon v. Phil. & Reading Coal & Iron Co., 217 N.Y. 432 (1916) ............................................ 10
Bd. of Managers of 411 E. 53rd St. Condo. v. Dylan Carpet, Inc., 582 N.Y.S.2d
1022 (1st Dep’t 1992) ............................................................................................................... 6
Blue Chip Emerald LLC v. Allied Partners, Inc., 750 N.Y.S.2d 291
(1st Dep’t 2002) ........................................................................................................................ 4
Brunetti v. Musallam, 783 N.Y.S.2d 347 (1st Dep’t 2004) ............................................................ 3
Cassata v. Brewster-Allen-Wichert, Inc., 670 N.Y.S.2d 552 (2d Dep’t 1998)............................... 4
Danann Realty Corp. v. Harris, 5 N.Y.2d 317 (1959) ................................................................... 8
Deerfield Commc’ns Corp. v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954 (1986) .......................... 6
EEOC v. Waffle House, Inc., 534 U.S. 279 (2002)......................................................................... 9
First Bank of the Ams. v. Motor Car Funding, 690 N.Y.S.2d 17 (1st Dep’t 1999)........................ 6
Great Earth Int’l Franchising Corp. v. Milks Dev., 311 F. Supp. 2d 419
(S.D.N.Y. 2004) ........................................................................................................................ 7
Hargrave v. Oki Nursery, Inc., 636 F.2d 897 (2d Cir. 1980) ......................................................... 5
Harsco Corp. v. Segui, 91 F.3d 337 (2d Cir. 1996)........................................................................ 8
In re T.J. Ronan Paint Corp., 469 N.Y.S.2d 931 (1st Dep’t 1984) ................................................ 3
M’Baye v. World Boxing Ass’n, 429 F. Supp. 2d 652 (S.D.N.Y. 2006)....................................... 10
Meinhard v. Salmon, 249 N.Y. 458 (1928)..................................................................................... 3
Mfrs. Hanover Trust Co. v. Yanakas, 7 F.3d 310 (2d Cir. 1993) ................................................... 8
Shrader v. CSX Transp., Inc., 70 F.3d 255 (2d Cir. 1995) ............................................................. 1
Spodek v. Neiss, 756 N.Y.S.2d 903 (2d Dep’t 2003)...................................................................... 4
Telecom Int’l Am., Ltd. v. AT & T Corp., 280 F.3d 175 (2d Cir. 2001) ..................................... 4, 5
Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737 (2d Cir. 1979) ............................... 7
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 3 of 56
TABLE OF AUTHORITIES—Continued
Page(s)
iii
STATUTES AND RULES
Fed. R. Civ. P. 09(b) ..................................................................................................................... 2, 5
Fed. R. Civ. P. 59(e) ....................................................................................................................... 1
Local Civ. R. 6.3 ............................................................................................................................. 1
N.Y. Bus. Corp. L. § 1304 ............................................................................................................ 10
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 4 of 56
Plaintiffs submit this Memorandum of Law in support of their motion for reconsideration
of the Court’s July 17, 2007 Opinion and Order (“Opinion”), and for leave to file their Proposed
Second Amended Complaint, attached hereto as Exhibit A.1
INTRODUCTION
On July 17, 2007, this Court issued its Opinion granting Defendants’ motion to dismiss
the Complaint as to all counts, and granting leave to amend the Complaint as to the breach of
contract claim on behalf of two plaintiffs and the Section 1962(c) and 1962(d) claims under the
Racketeer Influenced and Corrupt Organizations Act (“RICO”) on behalf of all Plaintiffs. We
respectfully ask that the Court reconsider its dismissal of the fraud, fraudulent inducement, and
fiduciary duty claims without leave to amend, as well as its ruling that personal jurisdiction over
Montgomery Capital, Inc. has not been established in relation to the remaining RICO claims.
A motion for reconsideration under Fed. R. Civ. P. 59(e) should be granted if “the
moving party can point to controlling decisions or data that the court overlooked.” Shrader v.
CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995); see also Local Civ. R. 6.3. We believe that
the Opinion misapplied several precedents and overlooked key factual allegations in the
Complaint. We recognize in retrospect that some of these allegations perhaps could have been
more clearly drawn to show, among other things, that some Plaintiffs have claims that others
may lack, while some Defendants lack defenses that others may have. The Proposed Second
1 At a conference on August 10, 2007, the Court invited Plaintiffs to file a proposed further
amended complaint containing revised fraud, fraudulent inducement, and fiduciary duty claims, and
correspondingly to revise the present motion. Accordingly, Plaintiffs here explain not only why
reconsideration of certain matters in the Opinion is warranted, but also why leave should be given to
replead the fraud, fraudulent inducement, and fiduciary claims as set forth in the Proposed Second
Amended Complaint. With respect to the contract and RICO allegations, and the averments relating to
personal jurisdiction, the Proposed Second Amended Complaint is identical or virtually so to the First
Amended Complaint, in which Plaintiffs took advantage of the Court’s leave to amend those allegations.
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 5 of 56
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Amended Complaint is designed to clarify the differences among the parties and the relevant
relationships, as well as to alleviate potential Rule 9(b) concerns.
Although we believe that the Court erred with regard to all of the claims in the Complaint
and to personal jurisdiction, we respectfully ask the Court to reconsider the dismissal of Counts
Four, Five, and Six (as well as its ruling regarding personal jurisdiction over Montgomery
Capital), and to permit repleading on those claims in accordance with the Proposed Second
Amended Complaint.
I. Breach of Fiduciary Duty: The Opinion Failed To Recognize That The
Contractual Disclaimer Of A Partnership Relation Cannot Possibly Bind
Non-Contracting Parties And, In Any Event, Did Not Constitute A General
Disclaimer Of A Fiduciary Relationship In This Case
The Court dismissed the claim of breach of fiduciary duty (Count Six of the Complaint)
based on a clause in the Master Policy Purchase Agreements (“MPPAs”) that provides that
“[n]othing contained in this Agreement is intended to . . . create the relationship of . . . a
partnership or joint venture.” Opinion at 15. We submit that this ruling overlooks several
essential points.
The basic nature of the arrangement here – as Plaintiffs have endeavored to make clearer
in the Proposed Second Amended Complaint (“SAC”) (e.g., SAC ¶¶ 4-8) – is that Ritchie
Capital Management, L.L.C. (“RCM”), as adviser and fiduciary to (as well as holder of
beneficial interests in) Ritchie Risk-Linked Life Strategies Trust I, Ritchie Life Strategies Master
Trust, and Ritchie Risk-Linked Strategies Trading, Ltd. (all three entities collectively, the
“Investing Plaintiffs”), caused the Investing Plaintiffs to become, together with Coventry, the de
facto equity shareholders in Plaintiffs Ritchie Risk-Linked Strategies Trading (Ireland), Limited
(“Ritchie I”) and Ritchie Risk-Linked Strategies Trading (Ireland) II, Limited (“Ritchie II”)
(collectively, the “Contracting Plaintiffs”).
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 6 of 56
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Ritchie I and Ritchie II in turn each entered into a contract – an MPPA – with Coventry’s
special-purpose subsidiary LST I LLC (“LST”) for the purchase of life insurance policies. These
MPPAs were only two out of a large number of pertinent agreements governing the whole
arrangement. (Plaintiffs have tried to make this point clearer in the SAC. See SAC ¶¶ 45, 48, 51.)
Thus, accepting for present purposes that, in the MPPAs, Ritchie I and Ritchie II disclaimed a
partnership or joint venture relation with LST, (1) the Plaintiffs not party to the MPPAs did no
such thing, and (2) the disclaimer does not apply to the Defendants not party to the MPPAs.
The Court states that the Investing Plaintiffs “have pleaded no adequate bases for
establishment of a fiduciary relationship absent one between the defendants and Ritchie I and II.”
Opinion at 16. But the Complaint and the SAC allege several grounds for a fiduciary relationship
between, on the one hand, the Investing Plaintiffs and, on the other, LST’s parents and affiliates,
including: (a) the joint equity-like investment in Ritchie I and Ritchie II, and (b) the fact that
Plaintiffs (specifically, the Investing Plaintiffs) provided the funding for an investment
arrangement that Defendants in practice had the responsibility for managing. See Compl. ¶¶ 30-
33; SAC ¶¶ 4-8, 45-53.
Plaintiffs cited several cases in their brief in opposition (see Pl. Mem. in Opp’n (“Pl.
Mem.”) 17-18, 21-22) demonstrating that these arrangements are textbook bases for a fiduciary
relationship (see Brunetti v. Musallam, 783 N.Y.S.2d 347, 349 (1st Dep’t 2004) (relationship
between investors in a close corporation “imposes a high degree of fidelity”); In re T.J. Ronan
Paint Corp., 469 N.Y.S.2d 931, 936 (1st Dep’t 1984) (same); Meinhard v. Salmon, 249 N.Y.
458, 462-64 (1928) (arrangement where one party provides the funding and the other manages
the investment creates “fiduciary duties akin to those of partners”)), and there is extensive
additional authority supporting a finding of a fiduciary relationship in the circumstances
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 7 of 56
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presented by this case. E.g., Spodek v. Neiss, 756 N.Y.S.2d 903 (2d Dep’t 2003) (finding a
fiduciary relationship between shareholders in a close corporation); Blue Chip Emerald LLC v.
Allied Partners Inc., 750 N.Y.S.2d 291, 294 (1st Dep’t 2002) (co-venturer managing the
investment owed fiduciary duty to other co-venturer); Cassata v. Brewster-Allen-Wichert, Inc.,
670 N.Y.S.2d 552, 553 (2d Dep’t 1998) (“The shareholders of a close corporation owe each
other a duty to act in good faith”). The Opinion overlooks these points.
Similarly, the Opinion does not address the fact that the disclaimer does not apply to any
of the Defendants not party to the MPPAs. The Complaint fairly alleges – although the SAC
strives to make it clearer (see SAC ¶¶ 2, 6-8, 45) – that LST’s parents were equity stake-holders
in Ritchie I and Ritchie II and therefore owed the Investing Plaintiffs fiduciary duties. By the
same token, the Coventry entities’ role as de facto decision-makers with respect to the funds
contributed by Plaintiffs also grounds a fiduciary relationship.
Even beyond these points, the disclaimer provision at issue says only that the parties have
not formed a “partnership” or “joint venture.” As Plaintiffs have explained (see Pl. Mem. 21), a
fiduciary relation may be formed even when a “partnership” or “joint venture” is not. The
allegations described in the preceding paragraphs allege circumstances that would create a
fiduciary relation even without a partnership or a joint venture.
II. Fraud: The Opinion Failed To Consider Claims By And Against Non-
Contracting Parties And Overlooked Several Reasons Why The Fraud
Claims Do Not Duplicate The Contract Claims
The Court dismissed the fraud claims (Count Four of the Complaint) based on the theory
that “a fraud claim will not lie if it arises ‘out of the same facts as plaintiff’s breach of contract
claim.’” Opinion at 17 (quoting Telecom Int’l Am., Ltd. v. AT & T Corp., 280 F.3d 175, 196 (2d
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 8 of 56
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Cir. 2001)).2 Citing this principle, the Court held that Plaintiffs did not identify a “separate legal
duty” in support of the fraud claim, nor had Plaintiffs pointed to representations “collateral” to
the contract. Id. at 18. Concluding that the fraud claim “appears to rest entirely on the subjects
covered in the representations and warranties” contained in the two MPPAs, the Court ruled that
any misrepresentations or omissions relating to the contracts must be pleaded as a breach of
contract claim. Id. This reasoning overlooks several key points.
First, the Opinion misreads Telecom International, which did not make the sweeping
pronouncement that under New York law, a contract claim and a fraud claim can never cover the
same facts or subject matter. Rather, in that case the Second Circuit stated the well-settled (but
here inapplicable) principle that an ordinary contract claim cannot be converted into a fraud
claim merely by alleging that at the time of contracting, the defendant misrepresented its
intention to perform the contract. See Telecom Int’l, 280 F.3d at 196. That rule is not so broad
that an act that grounds a breach of contract claim can never be the basis for a claim sounding in
tort. E.g., Hargrave v. Oki Nursery, Inc., 636 F.2d 897, 899 (2d Cir. 1980) (misrepresentation
was actionable as both breach of contract and fraud); see also Pl. Mem. 15-16.
Second, the Opinion overlooks the fact that the fraud claim is asserted by a number of
Plaintiffs not party to the MPPAs against a number of Defendants not party to the MPPAs. Even
if the Court’s reading of Telecom International were correct – and we believe that it is not – that
would have nothing to do with the Investing Plaintiffs’ fraud claims against the Coventry
entities, or with the Contracting Plaintiffs’ fraud claims against Coventry First LLC (the main
2 The Court also stated that Counts Four and Five suffered from Rule 9(b) pleading defects.
Opinion at 17, 19. Plaintiffs respectfully disagree but have attempted in the Proposed Second Amended
Complaint to alleviate potential Rule 9(b) difficulties.
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 9 of 56
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operating vehicle for Defendants’ dealings with Plaintiffs) and Montgomery Capital. The
Opinion makes no mention of these claims.
Third, the Opinion overlooks the fact that Plaintiffs have identified a separate legal duty
to disclose. As the opposition brief explained, the Complaint alleged that the Coventry entities
owed Plaintiffs a duty of disclosure. Pl. Mem. 16-18. That duty arose either from the fiduciary
relation created by the joint investment, partnership, or joint venture, or simply from the fact that
the Coventry entities and their officers possessed superior knowledge even as the Plaintiffs were
acting on the basis of mistaken information. Compl. ¶¶ 30-33, 38, 66, 87-89.
Fourth, Plaintiffs have alleged misrepresentations and omissions apart from and
“collateral” to the main duty to perform under the contracts. To begin with, the Complaint
alleges misrepresentations made after the execution of the purchase agreements relating to the
New York Attorney General’s investigation during a June 2006 telephone call. Id. ¶¶ 50-51. In
the SAC, Plaintiffs have strived to give greater specificity to these allegations (see SAC ¶¶ 70-
79). If not for the June 2006 misrepresentations, Plaintiffs would have terminated the
arrangement with Defendants, and thereby saved significant sums of money. Plaintiffs have
attempted to convey in the SAC (see id. ¶ 80) that the statements in the June 2006 call
constituted misrepresentations of present facts collateral to the contract. See First Bank of the
Ams. v. Motor Car Funding, Inc., 690 N.Y.S.2d 17, 21 (1st Dep’t 1999) (fraud claim predicated
on post-contract representation was not duplicative of breach of contract claim) (citing Deerfield
Commc’ns Corp. v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954 (1986)); Bd. of Managers of 411
E. 53rd St. Condo. v. Dylan Carpet, Inc., 582 N.Y.S.2d 1022, 1023 (1st Dep’t 1992) (false
statement of fact made after execution of contract was collateral to the contract).
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 10 of 56
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Additionally, in documents sent to the Plaintiffs, including the Investing Plaintiffs, before
the formation and execution of the purchase agreements, the Defendants not party to the MPPAs
misrepresented existing, external facts about their products and business practices. See Compl.
¶¶ 27-33, 35-39, 87. These misrepresentations are clearly either “collateral” or “extraneous” to
the MPPAs; the misrepresentations do not form any part of the primary performance obligation
under the MPPAs, and they were made prior to the existence of the MPPAs. See, e.g., Triangle
Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 747 (2d Cir. 1979) (the fraud was collateral
or extraneous to the contract because it consisted of “independent false representations, made
before there ever was a contract between the parties, which led [plaintiff] to enter into it”); see
also Pl. Mem. 15-16.
Finally, Plaintiffs are prepared to prove that at least some of them did suffer special
damages. In the SAC, Plaintiffs have alleged the special damages that RCM and the Investing –
as opposed to Contracting – Plaintiffs in particular suffered in connection with setting up the
Ritchie IV arrangement and the securitization transaction. See SAC ¶¶ 92-94, 110, 116; see also
Compl. ¶ 64. These damages, which are out-of-pocket expenses unrecoverable as damages for
breach of contract, were a direct and proximate result of Defendants’ fraud and fraudulent
conduct. See Great Earth Int’l Franchising Corp. v. Milks Dev., 311 F. Supp. 2d 419, 430
(S.D.N.Y. 2004) (special damages flow “directly and proximately from the fraud, rather than
from the breach of contract”).
III. Fraudulent Inducement: The Opinion Misapplied Controlling Law And
Misapprehended The Claims By And Against Entities Not Party To The
MPPAs
The essence of the fraud-in-the-inducement claim is that, had Plaintiffs known that the
relevant representations were false, they never would have contracted with Defendants. The
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 11 of 56
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Court dismissed the fraudulent inducement claim (Count Five of the Complaint) on the strength
of the integration clause in the MPPAs. Opinion at 19-20. In this connection, the Court also ruled
that:
[s]ince the acts which the plaintiffs allege the fraud induced were the entry into
the two agreements that Ritchie I and II executed, the [integration clause] is
sufficient to bind not just the signatories but the other plaintiffs.
Id. at 20. This ruling overlooks three points.
First, as the Opinion recognizes (at 19), under New York law, an integration clause will
bar a claim of fraudulent inducement only in the special case that the clause “contain[s] explicit
disclaimers of the particular representations that form the basis” of the fraud claim. Mfrs.
Hanover Trust Co. v. Yanakas, 7 F.3d 310, 316 (2d Cir. 1993) (emphasis added) (citing Danann
Realty Corp. v. Harris, 5 N.Y.2d 317, 320 (1959)); see also Harsco Corp. v. Segui, 91 F.3d 337,
345 (2d Cir. 1996) (“where a party specifically disclaims reliance upon a particular
representation in a contract, that party cannot . . . claim it was fraudulently induced to enter into
the contract by the very representation it has disclaimed reliance upon”).
What the Opinion overlooks is that the integration clause in this case does not disclaim
reliance on the representations that Plaintiffs have put at issue. To the contrary, it does the exact
opposite: the clause states that LST “has not made any representations or warranties other than
as set forth herein.” MPPA § 7.12 (emphasis added). Plaintiffs have alleged that they were
relying on (among other things) several of the very representations and warranties “set forth
herein.” As Plaintiffs have never disclaimed reliance on the representations in the contract, the
integration clause cannot possibly bar them from claiming fraudulent inducement based on those
very representations.3
3 The Court also held as to the fraudulent inducement count that the alleged misrepresentations
and omissions are “not extraneous to the contract” and should be pleaded as a breach of contract claim.
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 12 of 56
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Second, the dismissal rests on the premise that the MPPAs were the only contracts
alleged by Plaintiffs to be fraudulently induced. See Opinion at 20. But that is not true. The
Complaint alleged (at ¶ 94) that the induced acts include the execution of multiple agreements
between Plaintiffs and Defendants, not just the MPPAs, as well as the abortive Ritchie IV
arrangement (see id. ¶ 64). Plaintiffs have attempted to make these allegations clearer in the
SAC. See SAC ¶¶ 80, 92, 113, 115. For this reason, the Court was mistaken to conclude that the
integration clause bars the fraudulent inducement claims by the Investing Plaintiffs, or any of the
Plaintiffs’ claims against a Defendant other than LST.
Third, a contract cannot bind a non-party (EEOC v. Waffle House, Inc., 534 U.S. 279,
294 (2002)), and the Investing Plaintiffs, as well as most of the Coventry Defendants, are not
signatories to the MPPAs. Therefore, these parties cannot possibly be affected one way or the
other by the integration clause in the MPPAs. The integration clause is addressed only to
information being furnished by LST to Ritchie I and Ritchie II. The Complaint, by contrast, is
fairly read – and the SAC tries to make it even clearer, see SAC ¶¶ 53-58 – that Defendants other
than LST are responsible for misrepresentations and omissions, and not just to Ritchie I and
Ritchie II, but also to the Investing Plaintiffs.
IV. Personal Jurisdiction: The Court Overlooked That Montgomery Capital,
Inc. Is Subject To Personal Jurisdiction On Any Claim, A Point Implicitly
Conceded By Defendants
The Opinion states that personal jurisdiction as to Montgomery Capital, Inc. “has not
sufficiently been pled . . . as to the remaining RICO claims.” Opinion at 26. The Opinion does
not indicate precisely what is deficient about the relevant allegations and evidentiary
Opinion at 21. This conclusion is incorrect for the reasons expressed above (at pp. 6-7) in relation to the
fraud claim: The Complaint alleges misstatements and omissions that are plainly collateral or extraneous
to the contracts. Many of Defendants’ misrepresentations took place well before the formation of the
agreements at issue and induced the Plaintiffs to enter into those agreements.
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 13 of 56
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submissions. In any event, we submit that the Court has overlooked at least one point so
incontestable that even Defendants have ceased to challenge it.
It is a completely settled matter of civil procedure that a corporation licensed to do
business in New York is subject to personal jurisdiction in New York on any claim. Pl. Mem. 3
& n.3 (citing, inter alia, Bagdon v. Phil. & Reading Coal & Iron Co., 217 N.Y. 432 (1916), and
M’Baye v. World Boxing Ass’n, 429 F. Supp. 2d 652, 658 (S.D.N.Y. 2006) (“New York courts
are in general agreement that a foreign corporation submits itself to the jurisdiction of New York
courts when it registers to do business within this state under [N.Y. Bus. Corp. L.] § 1304”)).
Montgomery Capital, Inc. is such a corporation, which is undoubtedly why in the New York
Attorney General action, Montgomery Capital expressly conceded that it is subject to personal
jurisdiction in New York. See id. at 2-3. Indeed, after Plaintiffs’ opposition brief called all of
these points to the attention of Defendants’ counsel (who did not represent Montgomery Capital
in the Attorney General action), their reply brief quite pointedly refrained from contesting the
Court’s jurisdiction over Montgomery Capital. See Def. Reply Br. 1.
CONCLUSION
For the foregoing reasons, the Court should reconsider its Opinion and Order of July 17,
2007, insofar as it dismisses Counts Four, Five, and Six of the Complaint without leave to amend
and rules that personal jurisdiction has not been established over Defendant Montgomery
Capital, Inc. The Court should grant leave to replead those claims as set forth in the attached
Proposed Second Amended Complaint.
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 14 of 56
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Dated: August 24, 2007
Respectfully submitted,
LAW OFFICES OF THOMAS P. PUCCIO
Thomas P. Puccio
230 Park Avenue
New York, NY 10169
Tel: (212) 883-6383
Fax: (212) 883-6388
ROBBINS, RUSSELL, ENGLERT,
ORSECK & UNTEREINER LLP
By: s/ Lawrence S. Robbins
Lawrence S. Robbins (LR-8917)
Gary A. Orseck
Rachel S. Li Wai Suen
Daniel R. Walfish
1801 K Street, N.W. Suite 411L
Washington, D.C. 20006
Tel: (202) 775-4500
Fax: (202) 775-4510
Counsel for Plaintiffs
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 15 of 56
Exhibit A
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 16 of 56
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
RITCHIE CAPITAL MANAGEMENT, L.L.C.,
RITCHIE RISK-LINKED STRATEGIES
TRADING (IRELAND), LIMITED, RITCHIE
RISK-LINKED STRATEGIES TRADING
(IRELAND) II, LIMITED, WALKERS SPV
LIMITED, as trustee for Ritchie Risk-Linked
Life Strategies Trust I and Ritchie Life
Strategies Master Trust, and RITCHIE RISK-
LINKED STRATEGIES TRADING, LTD.,
Plaintiffs,
v.
COVENTRY FIRST LLC, THE COVENTRY
GROUP, INC., MONTGOMERY CAPITAL,
INC., LST I LLC, ALAN BUERGER,
CONSTANCE BUERGER, REID S.
BUERGER, ANTONIO MUNIZ, ALEX
SELDIN, NEAL JACOBS, EILEEN SHOVLIN,
and JIM DODARO,
Defendants.
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07 Civ. 3494 (DLC)
ECF Case
[PROPOSED] SECOND
AMENDED COMPLAINT
Plaintiffs, through their attorneys, for their Second Amended Complaint against
Defendants allege as follows:
NATURE OF THE ACTION
1. This is an action under the federal Racketeer Influenced and Corrupt
Organizations Act (“RICO”), and for fraud, fraudulent inducement, breach of fiduciary
duty, and breach of contract. It is brought to recover damages caused to Plaintiffs by
Defendants’ pervasive fraud in the “life settlements” industry – that is, the secondary
market for life insurance policies. In a life settlement transaction, an investor buys a life
insurance policy from the policy’s owner at a discount, pays the policy’s premiums as
Case 1:07-cv-03494-DLC Document 54 Filed 08/24/2007 Page 17 of 56
they come due, and then collects the death benefits. Coventry First LLC is a major player
in the life settlement industry, but its bid-rigging and fraud have resulted in civil
proceedings by the New York Attorney General and the Florida Office of Insurance
Regulation against itself and its affiliates.
2. Defendants Coventry First LLC (“Coventry First”) and LST I LLC
(“LST”) are owned by Defendant Montgomery Capital, Inc. (“Montgomery Capital”) and
affiliated with Defendant The Coventry Group, Inc. (all four entities, together with
affiliates, to be referred to collectively as “Coventry”). Coventry First is the main
operating subsidiary for Coventry’s activities in the life settlement field. Montgomery
Capital is a holding company, and LST is a special-purpose vehicle that serves an alter
ego for Montgomery Capital and Coventry First.
3. Coventry is owned and controlled by the Buerger family, which includes
Defendants Alan Buerger, Constance Buerger, and Reid S. Buerger. Defendant Antonio
Muniz is the chief financial officer of Coventry First and Montgomery Capital. The other
individual defendants are or were executives and employees of Coventry First. Many if
not all of these defendants, as well as Coventry’s employees generally, held themselves
out in emails and otherwise as representing “Coventry” rather than any particular entity
or entities in the Coventry corporate family.
4. Ritchie Capital Management, L.L.C. (“RCM”), as adviser and fiduciary to
(as well as holder of pecuniary interests in the value of) Ritchie Risk-Linked Life
Strategies Trust I, Ritchie Life Strategies Master Trust, and Ritchie Risk-Linked
Strategies Trading, Ltd. (all three entities collectively, the “Investing Plaintiffs”), caused
the Investing Plaintiffs to become de facto equity shareholders in Plaintiffs Ritchie Risk-
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Linked Strategies Trading (Ireland), Limited (“Ritchie I”) and Ritchie Risk-Linked
Strategies Trading (Ireland) II, Limited (“Ritchie II”).
5. Coventry (through a shell company known as Sandy Run Ltd.) also
became a de facto equity shareholder in Ritchie I and Ritchie II. (Sandy Run is a mere
alter ego, agency, and instrumentality of Montgomery Capital and the Coventry corporate
family. The affairs of Sandy Run are completely dominated by Montgomery Capital and
the Coventry corporate family. On information and belief, Sandy Run’s officers and
directors all are officers and directors of Coventry First and Montgomery Capital. Sandy
Run conducts no business of its own but is merely a vehicle for holding the subordinated
securities of Ritchie I and Ritchie II.)
6. Ritchie I and Ritchie II (collectively, the “Contracting Plaintiffs”) each
entered into a contract with the Coventry alter ego LST to purchase life insurance policies
that Coventry First had acquired on the open market. These contracts – which were only
one set out of a large number of contracts governing the relationship between the sides –
were known as Master Policy Purchase Agreements, or “MPPAs.”
7. Coventry and the Investing Plaintiffs intended all along that the
Contracting Plaintiffs would re-sell the life insurance products at a profit in a
securitization transaction.
8. The Investing Plaintiffs and Coventry, therefore, were carrying on, as the
co-owners of Ritchie I and Ritchie II, in an arrangement in which profits and losses
would be shared. The Investing Plaintiffs contributed the majority of the financing, while
Coventry contributed the majority of the effort and expertise.
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9. Defendants, however, concealed from Plaintiffs that Coventry First was
systematically defrauding the owners of the policies, and then further deceived Plaintiffs
as to the existence of an investigation by the Attorney General of New York into
Defendants’ misconduct. Coventry First and its officers, moreover, falsely represented on
numerous occasions that Coventry was in compliance with all applicable laws and
regulations.
10. After deceiving Plaintiffs as to the New York Attorney General’s
investigation, Defendant Reid Buerger repeatedly invoked the Fifth Amendment when
questioned in September 2006 about the illegal acts that Coventry had committed in
relation to its acquisition of life insurance products from sellers.
11. Coventry’s misconduct has damaged Plaintiffs, as described herein.
JURISDICTION AND VENUE
12. The Court has jurisdiction over the subject matter of this action pursuant
to 28 U.S.C. § 1331 because Plaintiffs bring claims under RICO, 18 U.S.C. § 1962. The
Court has supplemental jurisdiction over the Plaintiffs’ state-law claims pursuant to 28
U.S.C. § 1367(a). In the alternative, the Court has original subject matter jurisdiction over
the state-law claims pursuant to 28 U.S.C. § 1332(a). While Plaintiffs cannot yet
calculate their damages with precision, it is likely at least 700 million dollars.
13. The Court has personal jurisdiction over Defendants because: (1)
Defendants regularly transact business in New York and have entered into contracts with
Plaintiffs in New York; (2) Defendants have committed tortious acts within New York;
(3) Defendants have committed tortious acts outside New York causing injury to
Plaintiffs and others in New York as set forth in this complaint, and regularly do business
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and derive substantial revenue from services rendered in New York, and expect or should
reasonably expect their acts to have consequences in New York. Defendants derive
substantial revenue from interstate commerce.
14. Coventry First and LST submitted in a series of agreements with Plaintiffs
to the jurisdiction of the courts sitting in the State of New York for purposes of disputes
arising out of their relationship with Plaintiffs.
15. Defendant Montgomery Capital, Inc. is subject to general personal
jurisdiction in New York because it is licensed to do business in New York under Section
1304 of the New York Business Corporation Law. Indeed, Montgomery Capital
explicitly conceded in an action brought by the New York Attorney General that
“Montgomery Capital is subject to personal jurisdiction in New York.”
16. Defendant The Coventry Group, Inc. receives a substantial portion of the
operating income of Coventry First and is under common control with the other Coventry
entities. The Coventry Group, Inc. also facilitated Coventry First’s misconduct in the
marketplace. In particular, The Coventry Group, Inc. assisted Coventry First in its
purchases by converting term life policies to universal life insurance, receiving fees from
Coventry First in the process.
17. Discussions between Coventry and representatives of RCM situated in
New York began in March 2005. From March 2005 until November 2006, Coventry
employees and executives frequently communicated by email and telephone with RCM
employees in New York. Among the Coventry executives who frequently placed
telephone calls and sent emails to RCM’s New York employees were Alan Buerger, Reid
Buerger, Antonio Muniz, and Alex Seldin.
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18. Each of the individual defendants has responsibility either for the overall
management of Coventry or for Coventry First’s acquisition of life insurance policies.
These defendants bought hundreds, if not thousands, of life insurance policies –
including, on information and belief, policies procured by fraud and bid-rigging, as
alleged herein – from New York sellers. These defendants also purchased numerous
policies through New York brokers, and communicated and negotiated with brokers in
New York in connection with those purchases.
19. The individual defendants had knowledge of, and control over, Coventry
First’s purchases of policies in New York. For instance, Neal Jacobs, Jim Dodaro, and
Eileen Shovlin negotiated on behalf of Coventry First with brokers in New York for the
purchase of policies. All purchases were approved by Reid Buerger.
20. Venue is proper in this District pursuant to 28 U.S.C. §§ 1391(b)(2) and
1965(a). In the alternative, venue is proper in this District pursuant to 28 U.S.C.
§ 1391(a)(2). Coventry waived any objection to venue in this Court in a series of
agreements with Plaintiffs.
THE PARTIES
21. Plaintiff RCM is a limited liability company with its principal place of
business in Lisle, Illinois. Its members are citizens of Illinois, Wyoming, Utah, and
Arizona.
22. Plaintiffs Ritchie I and Ritchie II are Irish corporations with offices in
Ireland.
23. Plaintiff Walkers, a Cayman Islands company with its principal place of
business in the Cayman Islands, is sole trustee of Ritchie Trust I and Ritchie Master
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Trust, each of which is a class of Ritchie Risk-Linked Strategies Series Trust, a Cayman
Islands unit trust.
24. Plaintiff Ritchie Risk-Linked is a Bermudan limited company with its
principal place of business in Bermuda.
25. Defendant Coventry First is a limited liability company with its principal
place of business in Fort Washington, Pennsylvania. Coventry First’s sole member is
Montgomery Capital. The officers of Coventry First include Alan Buerger, CEO and
Treasurer; Constance Buerger, President and Secretary; and Reid S. Buerger, Vice
President.
26. Defendant Montgomery Capital is a Delaware corporation with its
principal place of business in Fort Washington, Pennsylvania. The shareholders of
Montgomery Capital are Alan Buerger, Constance Buerger, Reid S. Buerger, and the
Reid S. Buerger Trust. The officers of Montgomery Capital include Alan Buerger,
Constance Buerger, and Reid Buerger.
27. Defendant The Coventry Group, Inc. is a Pennsylvania corporation with
its principal place of business in Fort Washington, Pennsylvania. Its shareholders are
Alan and Constance Buerger. Its officers include Alan Buerger, President, and Constance
Buerger, Treasurer and Vice President.
28. Defendant LST is a Delaware limited liability company. It is a wholly-
owned subsidiary of Montgomery Capital, which is its sole member. LST’s chief
executive officer is Alan Buerger.
29. LST is a mere alter ego, agency, and instrumentality of Montgomery
Capital and the Coventry corporate family. The affairs of LST are completely dominated
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by Montgomery Capital and the Coventry corporate family. On information and belief,
LST – the name of which is believed to stand for “Life Settlement Transfers” – has no
assets of its own, and its officers and directors all are officers and directors of Coventry
First and Montgomery Capital. LST conducts no business of its own but was merely a
conduit for Coventry’s sale of life insurance policies to Ritchie I and Ritchie II.
30. Defendants Alan Buerger, Constance Buerger, and Reid S. Buerger are
individuals residing in Pennsylvania. They own and control Coventry. Reid Buerger is
the son of Alan Buerger, the founder and chief executive of the Coventry group.
Constance Buerger, Alan Buerger’s wife and Reid Buerger’s step-mother, is president of
Coventry First and chief operating officer of the Coventry group.
31. Defendant Antonio Muniz has served as chief financial officer of
Coventry First and of Montgomery Capital since 2003. On information and belief, he is a
resident of Pennsylvania.
32. Defendant Alex Seldin is General Counsel of Coventry. On information
and belief, he is a resident of Pennsylvania.
33. Defendant Neal Jacobs is Coventry’s Director of Financial Underwriting.
On information and belief, he is a resident of Pennsylvania.
34. Defendant Jim Dodaro is Coventry’s Vice President of Financial
Underwriting. On information and belief, he is a resident of Pennsylvania.
35. Eileen Shovlin is a Coventry Regional Vice President. On information and
belief, she is a resident of Pennsylvania.
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BACKGROUND: THE SECONDARY MARKET FOR LIFE INSURANCE
36. The life insurance policies at issue in this case insured persons, typically
wealthy individuals 65 years of age and older, who have determined that they prefer (a)
an immediate, lump-sum payment to (b) a payment to their beneficiaries when they die,
along with the ongoing expense of premium payments. In a typical situation, a policy
owner’s children have become financially independent, or the policy was purchased by a
corporation that hired the insured as an executive but for which the insured no longer
works.
37. The life settlement payment will be more than the “surrender value” of the
policy – the contractual price at which a policy owner can return the policy to the
insurance company that issued it – but less than the death benefit. The buyer of the policy
continues to pay premiums until the insured’s death, at which point the buyer claims the
death benefit. Thus the investor is wagering that the value of the future death benefit will
exceed the life settlement payment and the costs of paying premiums until the insured’s
death.
38. An insured can enter into a life settlement transaction in one of two ways.
First, the insured (typically through a representative such as a financial advisor or
planner, insurance agent, accountant, or attorney) might hire a life settlement broker to
mount the equivalent of an auction, collecting bids on the policy from buyers (or from
other brokers who in turn represent buyers). Second, the insured (again through a
representative) might make direct contact with a buyer.
39. Coventry First, together with any subsidiaries and affiliates, is one such
buyer. Its work force includes persons with deep experience in the life insurance industry.
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40. Coventry First is a leading player in the secondary market for life
insurance policies. It entered that market as a buyer in 2001, purchasing 436 policies
representing $720 million in total death benefits in 2002. By 2005, Coventry First or its
affiliates had purchased 1,318 life insurance policies representing more than $3 billion in
death benefits.
41. Coventry sells the policies that it purchases to institutional investors. Such
investors have included the American International Group (“AIG”), Citigroup, Berkshire
Hathaway, and the Ritchie group.
DEFENDANTS’ ILLEGAL CONDUCT
A. Coventry Partners With Ritchie
42. Beginning in 2005, the Ritchie group began negotiating with Defendants
an arrangement under which Ritchie would partner with Coventry for the purpose of
investing in life insurance products and then re-selling them at a future point through a
securitization transaction.
43. In the spring and summer of 2005 and afterwards, Alan Buerger, Reid
Buerger, Constance Buerger, and Antonio Muniz, in connection with the negotiations
with the Ritchie group, represented to RCM (and in particular to John (“Jeff”)
Mulholland, Duncan Goldie-Morrison, and Thane Ritchie) that the life insurance policies
in which Coventry First transacts have no legal taint and that Coventry purchases policies
and otherwise conducts itself in accordance with law.
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44. Rounds of negotiations were concluded in June 2005, September 2005,
December 2005, and June 2006. Each round culminated in the commitment by the
Investing Plaintiffs of additional capital.
45. The purchasers of the policies were Plaintiffs Ritchie I and Ritchie II. The
Investing Plaintiffs and Coventry jointly committed capital to, and became owners of
subordinated securities in, Ritchie I and Ritchie II, which entitled the Investing Plaintiffs
and Coventry pursuant to a set of Intercreditor Agreements, among other instruments, to
receive the profits of Ritchie I and Ritchie II after other debts have been paid.
46. The Ritchie group was a partner, joint venturer, and co-venturer of
Coventry. While the Investing Plaintiffs contributed the great majority of the financing to
the partnership and venture, Coventry’s specialty was in analyzing and servicing life
insurance policies.
47. Plaintiffs relied at all times on Defendants’ expertise, as well as their
honesty and integrity. It was Coventry’s responsibility to seek out and purchase
individual policies that met certain pre-defined criteria that the parties had agreed on.
Each month, pursuant to an elaborate series of contracts, Coventry would notify Ritchie I
and Ritchie II that Coventry had a certain dollar amount’s worth of qualifying policies to
sell. Ritchie I and Ritchie II then would pay the necessary funds to Coventry, which
would transfer the policies to Plaintiffs.
48. It was, moreover, Coventry’s responsibility to service the policies,
including, among other things, tracking premium payments and claims for death benefits
from the issuing life insurance companies, determining when a claim for a death benefit
could be made and placing the claim, monitoring the health of the insureds, and
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maintaining current information on the issuing life insurance companies. These
obligations are set forth in Servicing and Monitoring Agreements between, on the one
hand, the Contracting Plaintiffs, and on the other, Coventry First.
49. Day-to-day administration of the policies, in other words, was in the hands
of Coventry. Ritchie I and Ritchie II had only to send to a third-party intermediary a
check for the total premium payments due each month, and Coventry First directed the
intermediary to disburse the appropriate amounts to each issuing life insurance company.
50. Coventry also assumed responsibility for helping to market the life
insurance policies for resale. In the MPPAs, not just LST but all of its “Affiliates” – in
other words, the entire Coventry corporate family – promised “to cooperate with [the
Contracting Plaintiffs] “to remarket and sell, transfer, convey or assign [the policies].”
See Exhibit B to the MPPAs.
51. And in a set of Investment Administration and Servicing Agreements, a
Coventry affiliate named Montgomery Limited agreed to “give advice and make
recommendations to the [Contracting Plaintiffs] concerning “(i) the identification of
potential purchasers of . . . life insurance policies . . . (ii) the value and marketability of
its portfolio of life settlement policies or of individual policies or groups of policies, (iii)
the selection of . . . intermediaries by or through whom such transactions might be
executed or carried out,” as well as the securitization of the policies.
52. Montgomery Limited is a mere alter ego, agency, and instrumentality of
Montgomery Capital and the Coventry corporate family. The affairs of Montgomery
Limited are completely dominated by Montgomery Capital and the Coventry corporate
family. On information and belief, Montgomery Limited’s officers and directors all are
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officers and directors of Coventry First and Montgomery Capital. Montgomery Limited
on information and belief conducts no business of its own but is merely a vehicle for
Coventry’s provision of advice on the resale of the policies.
53. Plaintiffs, especially the Investing Plaintiffs, reposed their trust and
confidence in Defendants, who were in a position of superior knowledge and information
with respect to the purchase of the policies. Plaintiffs were not involved in the purchase
of the policies from the insureds and had no information about what the insureds were
told and what they knew in connection with the sale of their policies.
54. Plaintiffs had no reason to believe that Defendants were engaging in
misconduct in the purchase of the policies, much less that Coventry First was under
investigation for that misconduct. Plaintiffs, acting through RCM, had conducted due
diligence on Defendants and relied on them precisely because they had a reputation for
integrity in the life settlements industry and projected an image of cleanliness. The
Coventry executives with whom Plaintiffs dealt – in particular Defendants Reid Buerger,
Antonio Muniz, and Alan Buerger – appeared to be legitimate businessmen and
frequently assured RCM (as representative of the Investing Plaintiffs) that Coventry,
unlike some of its competitors, was scrupulous about complying with regulatory
requirements.
55. In drafts of an MPPA between Ritchie I and LST sent by email on, among
other occasions, June 20, 24, and 30, 2005, to, among others, John (Jeff) Mulholland of
RCM (which was acting as the representative of the Investing Plaintiffs), Coventry First
represented that:
(a) “The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not violate any
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United States federal, state or local law or regulation, violate, result in
the breach of any terms and provisions of, nor constitute an event of
default under, the certificate of formation or the operating agreement
of the Seller, or violate or breach any of the terms or provisions of, or
constitute an event of default under, any agreement to which the Seller
is a party or by which it shall be bound; nor violate any order,
judgment or decree applicable to the Seller of any United States
federal or state court, regulatory body, administrative agency or other
United States federal or state government instrumentality having
jurisdiction over the Seller or its properties.”
(b) “There is no action, suit or proceeding before or by any court,
regulatory body, administrative agency or other governmental agency
or body . . . now pending, or to the Seller’s knowledge, threatened,
against or affecting the Seller or its assets or properties: . . . seeking to
prevent the consummation of any of the transactions contemplated by
this Agreement, or . . . seeking any determination or ruling that might
materially and adversely [a]ffect the performance by the Seller of its
obligations under, or the validity and enforceability of, this
Agreement.”
(c) “With respect to each Life Settlement Policy: . . . Prior to the transfer
of each Life Settlement Policy to [Ritchie I], the Seller shall have
taken all action under applicable law in each relevant jurisdiction in
order to protect and perfect the ownership of the Seller in such policy .
. . .”
(d) “All Life Settlement Policies the purchases of which are being funded .
. . have been (A) Originated by the Seller or an Affiliate of the Seller
in one or more transactions that in all material respects were in
accordance with and in compliance with all applicable United States
federal, state and local laws, rules and regulations applicable to life
settlement transactions and the purchase and resale of life insurance
policies, or (B) purchased from an unaffiliated third party in one or
more transactions that, to the Seller’s knowledge, were in accordance
with and in compliance with, in all material respects, all applicable
United States federal, state and local laws, rules and regulations
applicable to the purchase of life insurance policies from third persons
that are not the Original Sellers.”
56. These drafts culminated in an MPPA between Ritchie I and LST for the
sale of policies. The amended and restated version of that contract, dated as of September
8, 2005 (the “Ritchie I Policy Purchase Agreement”) was signed for Coventry by Alex
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Seldin. In this document, Coventry First and Montgomery Capital (acting through its alter
ego LST) made representations substantially identical to those referred to in paragraph 55
above.
57. In drafts of an MPPA between Ritchie II and LST sent by email on,
among other occasions, December 7, 2005, to, among others, John (Jeff) Mulholland of
RCM (which was acting as the representative of the Investing Plaintiffs), Coventry First
made representations substantially identical to those referred to in paragraph 55 above.
58. These drafts culminated in an MPPA between Ritchie II and LST dated as
of December 15, 2005 (the “Ritchie II Policy Purchase Agreement”), and signed for
Coventry by Alex Seldin. In this document, Coventry First and Montgomery Capital
(acting through its alter ego LST) made representations identical to those made in the
Ritchie I Policy Purchase Agreement.
B. Defendants’ Fraud
59. In fact, however, Defendants were engaged in pervasive fraud. The fraud
was three-fold: first, Defendants systematically defrauded the insureds from whom
Coventry First purchased policies; second, Defendants defrauded Plaintiffs in concealing
from them the dishonest and unlawful conduct; and third, Defendants defrauded Plaintiffs
in concealing from them that Coventry First was under investigation by the Attorney
General of New York.
Defendants’ Fraud Against Sellers of Policies
60. Coventry First’s fraud against those from whom it purchased policies took
two general forms. First, when life settlement brokers pretended to conduct auctions,
Coventry First would pay the brokers undisclosed fees not to relay or otherwise act on
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offers from Coventry First’s competitors. Second, Coventry First would provide brokers
with a “gross offer” – a lump sum to be divided between a broker and policy owner with
the seller never learning the amount of the sum and therefore the amount retained by the
broker – and then falsify documentation in order to conceal from the seller part or all of
the broker’s compensation.
61. Following are some illustrative examples, taken from the complaint filed
by the Attorney General of New York in October 2006, of the first category of fraud
against those from whom Coventry First purchased policies.
(a) In 2003, a 79-year-old living in Hawaii decided to sell his
$400,000 life insurance policy. He sold the policy to Coventry First on April 16, 2003 for
$102,000, of which he received $78,000 and a broker received $24,000. But another
broker, Life Settlement Alliance (“LSA”), had a better offer, for $108,000, from another
buyer. Coventry First paid $12,000 to LSA not to present the higher bid, and never
disclosed the fee to the seller of the policy. In September 2006, Reid Buerger invoked the
Fifth Amendment when asked by the New York Attorney General whether he approved
the payment to LSA in exchange for LSA to sit on a better offer.
(b) A family trust hired a broker to put on the market a $4.9 million
policy insuring an 80-year-old woman. The broker solicited bids from Coventry First and
from AllSettled, a broker. In September 2004, Coventry First submitted an offer of
$705,000 and learned the next month of a competing offer for $880,000 submitted by
AllSettled. Neal Jacobs, Coventry First’s Director of Financial Underwriting, contacted
AllSettled’s President Michael Krasnerman to work out a deal, and Krasnerman
requested a 1.5% payoff to step aside. Coventry First and AllSettled eventually agreed
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17
that Coventry First would pay $49,000, or 1% of the death benefit, and in exchange
AllSettled would stand down. An email from Jacobs to Krasnerman on November 2,
2004 stated: “for [insured’s initials], the number is 49.” On November 11, 2004, Lenore
Saracino, a vice president at AllSettled, wrote a note: “Close file[.] Have a co-brokering
fee with Coventry.” On December 28, 2004, the trust received $800,000, of which
$142,500 went to the broker.
(c) In late 2004, Coventry First offered a broker $3.1 million for a
policy with a $10 million death benefit. The policy insured a 79-year-old man from New
Jersey and was owned by a family member. Near the end of the bidding process,
AllSettled’s Saracino forwarded a competing offer of $3,525,000 to Coventry’s Jacobs,
who forwarded it to Reid Buerger. Rather than compete with AllSettled, Coventry First
entered into a side deal under which AllSettled would receive $200,000 in exchange for
not presenting the higher offer. Jacobs sent AllSettled’s Krasnerman an email on
December 16, 2004 stating “number is 200” and then followed up with an email to
Coventry First’s accounting department: “[AllSettled is] now co-broker for $200K.” The
purchase closed on December 28, 2004 with Coventry First paying $3.1 million, of which
the seller’s broker received $153,053 and the seller received the remainder without ever
learning of the better offer.
62. The foregoing are merely illustrative examples. The New York Attorney
General’s complaint (attached hereto as Exhibit A) sets forth many more examples of
bid-rigging – in connection with a number of which Reid Buerger invoked the Fifth
Amendment – and notes (at paragraph 46) that beyond those, the Attorney General’s
office “has revealed literally dozens of other examples of bid rigging by Coventry and
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Brokers.” Plaintiffs hereby incorporate by reference paragraphs 27 to 45 of the New York
Attorney General’s complaint as if fully set forth herein.
63. The Florida Office of Insurance Regulation (“FOIR”) also has uncovered
numerous instances of bid-rigging, bribery, and fraud. The FOIR’s charging document
(attached hereto as Exhibit B) accuses Coventry First of violating the Florida Insurance
Code and orders Coventry First to show cause why its license for providing life
settlements should not be suspended or revoked. Paragraphs 10 to 31 of the FOIR notice
are hereby incorporated by reference.
64. The second type of fraud against those from whom Coventry purchased
policies involved the allocation of payments as between policy sellers and their brokers.
As the New York Attorney General’s complaint explains, brokers, with the knowledge
and assistance of Coventry First, frequently concealed from policy sellers the gross
payment from Coventry First – and thus concealed as well the amount of their
compensation.
65. In some states – including Arkansas, Florida, Indiana, Kansas, Kentucky,
Nebraska, Nevada, North Carolina, North Dakota, Ohio, Pennsylvania, Tennessee, and
Utah – buyers of life insurance policies are required to disclose to sellers the amount of
the broker’s compensation. In other states, there is no such requirement. In both types of
states, however, Coventry First presented sellers with false documentation.
66. For example, in one case Coventry First purchased a policy insuring an
80-year-old man in New York. The seller of the policy received $317,000, the primary
broker received $11,250, and another broker received $3,750. On July 27, 2004 Coventry
First sent offer sheets to the brokers reflecting this compensation. The brokers signed and
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returned the sheets to Coventry First, and that ended the bidding process. But later an
advisor of the seller inquired of the first broker how much compensation the broker had
or would receive. At the broker’s request, Coventry First supplied falsified offer sheets
making it appear as if the first broker had received only $1,250 in compensation instead
of the $11,250 he actually received. On August 31, 2004 Coventry First emailed the
falsified offer sheets to the second broker for his signature. The second broker signed and
returned the new offer sheets on September 2, 2004.
67. In another case involving a policy insuring an 87-year-old man from
Nevada, Coventry First agreed to pay $42,000 in broker compensation: $21,000 to LSA
and $21,000 to a brokerage known as Advanced. A Coventry First vice president named
Jim Dodaro emailed Reid Buerger and others at Coventry on December 22, 2004 to
suggest that they falsify the disclosure forms attached to the purchase agreement: “Total
comp is 42K to LSA (they were paying Advanced 21K of it). Looks like we have to do a
new Ex A disclosing comp. Can we lower the gross offer by 22K, put 20K comp on the
Ex A, defer 1K to LSA and pay 21K to Advance as a co-broker?” Following Dodaro’s
suggestion, Coventry First disclosed only $20,000 on the “Exhibit A” disclosure form
attached to the purchase agreement. The remaining $22,000 was paid to the brokers as a
co-broker payment and deferred compensation but was never disclosed to the seller. In
September 2006, Reid Buerger invoked the Fifth Amendment when asked why he agreed
to alter the Exhibit A.
Defendants’ Fraud Against Plaintiffs
68. Defendants deceived Plaintiffs as to Defendants’ practices in the purchase
of life insurance policies. Plaintiffs knew nothing of, and in fact had no reason to know
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of, Defendants’ systemic misconduct. Plaintiffs learned of the misconduct only when the
Attorney General of New York brought suit against Coventry in October 2006.
69. Defendants also deceived Plaintiffs as to the existence and target of the
Attorney General’s investigation. Defendants first of all failed to disclose to Plaintiffs
that an investigation of Coventry was under way. Plaintiffs learned of the investigation
from the Attorney General’s lawsuit. In fact, the investigation began in or about June
2005, and Defendants, on information and belief, knew of it no later than August 2006
and quite possibly earlier. Defendants had a duty to disclose the investigation.
70. Coventry First received a subpoena requesting documents from the New
York Attorney General in early March 2006 but Defendants did not disclose the
subpoena to Plaintiffs until a set of telephone conferences in June 2006.
71. Reid Buerger and Alan Buerger subsequently stated to Mulholland of
RCM (which represented the Investing Plaintiffs), among others, that Coventry had
received no subpoenas since an earlier one in 2005 relating to the New York Attorney
General’s investigation of AIG and its accounting practices.
72. Even in June 2006, Coventry did not describe the subpoena or the risks
associated with it fully and accurately. Defendants, however, once they chose to speak
had a duty to speak completely and truthfully about the investigation and the likely
consequences of it.
73. On June 22, 2006 Alan Buerger disclosed to Mulholland of RCM that
Coventry had in fact received a subpoena in March 2006, but represented that the focus
and target of the New York Attorney General’s investigation were life settlement brokers,
and in particular NFP, rather than Coventry. (NFP is “National Financial Partners,” a
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network of financial planners that, according to a June 12, 2006 article in TheStreet.com,
was being investigated by the New York Attorney General. NFP owns a brokerage
specializing in life settlements. On information and belief, some of NFP’s members had
worked with Coventry First on the sale of life insurance policies.)
74. On June 22, 2006, Alan Buerger emailed to Mulholland the article from
TheStreet.com. Buerger, in sending Mulholland the article, adopted the statements in the
article as his own, and thereby made misleading statements. Buerger deliberately led
Mulholland to believe that the New York Attorney General was interested only in NFP,
and that Coventry First had nothing to do with the practices being investigated by the
New York Attorney General. Buerger had a duty to disclose that not just NFP, but also
Coventry, was under investigation and engaged in the practices targeted by the New York
Attorney General.
75. On June 26, 2006, Alex Seldin, speaking on behalf of Coventry First and
Montgomery Capital, stated in a telephone conference to Mulholland from RCM, among
others, that there was “no action or investigation or anything against Coventry.”
Participants in the June 26, 2006 call included, in addition to Seldin and Mulholland,
Coventry’s outside counsel Dan Passage and RCM’s outside and in-house counsel.
76. On June 27, 2006, Coventry’s outside counsel Brian Brooks, speaking on
behalf of Coventry First and Montgomery Capital, stated in a telephone conference to
Mulholland from RCM, among others, that “NFP was widely seen as the target” of the
New York Attorney General’s investigation and that Coventry was merely “a source of
information.”
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77. Speaking through Brooks, Coventry First and Montgomery Capital also
stated to Mulholland from RCM, among others, that the focus of the Attorney General’s
request was compensation arrangements between providers and brokers, as well as
disclosure to sellers; that one question on the subpoena asked whether Coventry had paid
fees to brokers to provide non-competitive bids; and that the Attorney General was
looking for bid-rigging.
78. Through counsel, Coventry First and Montgomery Capital stated as well
that a “substantially completed” review of Coventry’s emails had not revealed “anything
like what [the New York Attorney General had previously] alleged against carriers” –
that is, “fictitious bids to suppress competition.” Participants in the June 27, 2006 call
included, in addition to Mulholland and Brooks, RCM’s outside and in-house counsel.
79. These disclosures about the subpoena – which were separate from and
collateral to any contract with any Plaintiff – were false and misleading, because, among
other reasons, Alan Buerger, Reid Buerger, Coventry First, and Montgomery Capital
failed to disclose that Coventry First was engaged in precisely the conduct targeted by the
subpoena, and indeed affirmatively implied the opposite.
80. After the communications with Coventry in June 2006, the Plaintiffs,
relying on the above misrepresentations, continued to purchase policies from Coventry,
and the Investing Plaintiffs entered into the Ritchie IV arrangement, defined and
described in paragraph 92 below.
THE PATTERN OF UNLAWFUL RACKETEERING ACTIVITY
81. As described in the preceding paragraphs, the Defendants conspired with
one another to defraud the Plaintiffs and the policy owners from whom Coventry First
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purchased life insurance policies. The Defendants participated in numerous racketeering
activities in order to accomplish the purposes of their fraudulent scheme, namely, to
induce policy owners to sell their policies in an unfairly rigged bidding process and to
induce institutional investors, such as Plaintiffs, to partner with Defendants to obtain
those policies.
82. As part of the scheme to defraud, Defendants conspired together to devise
and participate in a plan of deception, whereby they would and did use false and
fraudulent pretenses, representations, promises, and statements calculated to deceive
persons of ordinary prudence and due care and make material nondisclosures and
concealment of fact and information essential to policy owners in deciding whether and
for how much to sell their policies, and essential to institutional investors in deciding
whether and on what terms to partner with Coventry in the secondary life insurance
market.
83. Thus, Defendants unlawfully, intentionally, and willfully, and with the
intent to defraud, that is, knowingly and with specific intent to deceive in order to cause
financial gain, procured or caused Coventry First to procure life insurance policies, and
sold or caused Coventry to sell those policies to institutional investors to the detriment of
such investors, including Plaintiffs.
84. In carrying out the scheme to defraud policy owners and Plaintiffs,
Defendants engaged in conduct in violation of the federal laws, including mail fraud in
violation of 18 U.S.C. § 1341 and wire fraud in violation of 18 U.S.C. § 1343, as set forth
below.
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(a) Defendants have engaged in a scheme or artifice to defraud in
which they have fraudulently and with fraudulent intent obtained
life insurance policies and fraudulently induced institutional
investors to purchase those policies from Defendants. This scheme
entailed bid-rigging, bribery, and the falsification of documents
pertaining to purchases of life insurance policies from policy
owners. The scheme also included concealing from Plaintiffs both
that conduct and the New York Attorney General’s investigation
into that conduct.
(b) Defendants’ fraud was material, in that it influenced whether and
at what price policy owners sold life insurance policies to
Defendants. Defendants’ fraud likewise influenced whether and on
what terms Plaintiffs agreed to invest with Defendants in life
insurance policies.
(c) Defendants through their fraudulent scheme obtained property
from policy owners and from Plaintiffs. From policy owners,
Defendants obtained life insurance policies. From Plaintiffs,
Defendants obtained payment for life insurance policies, and
therefore a profit, because Plaintiffs paid Defendants more for each
policy than Defendant had paid for it.
(d) Defendants’ fraudulent scheme was furthered by numerous uses of
interstate wires and mail, some of which are described below.
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(e) Neal Jacobs’s e-mail message to Michael Krasnerman on
November 2, 2004, described in paragraph 61(b) of this complaint
and paragraph 30 of the New York Attorney General’s complaint,
violated the federal wire fraud statute (18 U.S.C. § 1343) and
constitutes a predicate act of racketeering under 18 U.S.C.
§ 1961(b).
(f) Neal Jacobs’s e-mail message to Michael Krasnerman on
December 16, 2004, described in paragraph 61(c) of this complaint
and paragraph 32 of the New York Attorney General’s complaint,
violated the federal wire fraud statute (18 U.S.C. § 1343) and
constitutes a predicate act of racketeering under 18 U.S.C.
§ 1961(b).
(g) The e-mailing of falsified offer sheets on August 31, 2004,
described in paragraph 66 of this complaint and paragraph 62 of
the New York Attorney General’s complaint, violated the federal
wire fraud statute (18 U.S.C. § 1343) and constitutes a predicate
act of racketeering under 18 U.S.C. § 1961(b).
(h) Jim Dodaro’s e-mail message to Reid Buerger on December 22,
2004, described in paragraph 67 of this complaint and paragraph
64 of the New York Attorney General’s complaint, violated the
federal wire fraud statute (18 U.S.C. § 1343) and constitutes a
predicate act of racketeering under 18 U.S.C. § 1961(b).
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(i) Jim Dodaro’s e-mail message to Reid Buerger on March 5, 2003,
described in paragraph 28 of the New York Attorney General’s
complaint, violated the federal wire fraud statute (18 U.S.C.
§ 1343) and constitutes a predicate act of racketeering under 18
U.S.C. § 1961(b).
(j) Reid Buerger’s e-mail message to Jim Dodaro on or about
November 18, 2004, described in paragraph 33 of the New York
Attorney General’s complaint, in which Reid Buerger approved a
co-broker payment to the East Coast Settlement Company, violated
the federal wire fraud statute (18 U.S.C. § 1343) and constitutes a
predicate act of racketeering under 18 U.S.C. § 1961(b).
(k) Each and every e-mail message sent by Jim Dodaro described in
paragraphs 37 to 39 of the New York Attorney General’s
complaint violated the federal wire fraud statute (18 U.S.C.
§ 1343) and constitutes a predicate act of racketeering under 18
U.S.C. § 1961(b).
(l) Jim Dodaro’s e-mail message to Coventry’s accountant on May 5,
2005, described in paragraph 40 of the New York Attorney
General’s complaint, violated the federal wire fraud statute (18
U.S.C. § 1343) and constitutes a predicate act of racketeering
under 18 U.S.C. § 1961(b).
(m) Jim Dodaro’s e-mail message to Eileen Shovlin on July 20, 2005,
described in paragraph 43 of the New York Attorney General’s
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complaint, violated the federal wire fraud statute (18 U.S.C.
§ 1343) and constitutes a predicate act of racketeering under 18
U.S.C. § 1961(b).
(n) Eileen Shovlin’s e-mail message to Jim Dodaro on July 20, 2005,
described in paragraph 43 of the New York Attorney General’s
complaint, violated the federal wire fraud statute (18 U.S.C. §
1343) and constitutes a predicate act of racketeering under 18
U.S.C. § 1961(b).
(o) Jim Dodaro’s e-mail message to Neal Jacobs on February 8, 2005,
described in paragraph 44 of the New York Attorney General’s
complaint, violated the federal wire fraud statute (18 U.S.C.
§ 1343) and constitutes a predicate act of racketeering under 18
U.S.C. § 1961(b).
(p) The “co-broker” payments discussed in paragraphs 42 to 47 of this
complaint and paragraphs 27 to 45 of the New York Attorney
General’s complaint, as well as other such payments not
specifically enumerated in the complaints, were made in
furtherance of Defendants’ fraudulent scheme. To the extent that
any of those “co-broker” payments were made by interstate wires
or mail, defendants violated 18 U.S.C. § 1343 and 18 U.S.C.
§ 1341, respectively. Each violation of these statutes is a predicate
act of racketeering.
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(q) The purchase agreements relating to the transactions described in
paragraphs 61 to 67 of this complaint or paragraphs 27 to 45 of the
New York Attorney General’s complaint, as well as other such
purchase agreements not specifically enumerated in the
complaints, made material misrepresentations and/or omissions of
fact in furtherance of Defendants’ fraudulent scheme. In particular,
the purchase agreements did not disclose to policy holders that
Defendants had fraudulently influenced the purchase of their life
insurance policies through tactics such as bid-rigging and co-
broker payments. To the extent that any of those purchase
agreements were transmitted by interstate wires or mail,
defendants violated 18 U.S.C. § 1343 and 18 U.S.C. § 1341,
respectively. Each violation of these statutes is a predicate act of
racketeering.
(r) In the negotiations that culminated in. among other things, the
Ritchie I Policy Purchase Agreement and the Ritchie II Policy
Purchase Agreement, as well as in the negotiations that culminated
in the Ritchie IV arrangement (described and defined in paragraph
92 below), Alex Seldin, Reid Buerger, and Antonio Muniz
transmitted or caused to be transmitted over email documents
containing the statements set forth in paragraphs 55 to 58 above.
The transmission of these statements violated the federal wire
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fraud statute (18 U.S.C. § 1343) and constitutes predicate acts of
racketeering under 18 U.S.C. § 1961(b).
(s) During the interstate telephone conferences occurring in or about
June 2006, as described in paragraphs 70-79 of this complaint,
Alex Seldin, Montgomery Capital, and Coventry First acted in
furtherance of Defendants’ fraudulent scheme by misrepresenting
to Plaintiffs their own activities and the nature of the New York
Attorney General’s investigation. These misrepresentations
violated the federal wire fraud statute (18 U.S.C. § 1343) and
constitutes a predicate act of racketeering under 18 U.S.C.
§ 1961(b).
85. This enumeration of predicate acts of racketeering is not exhaustive. As
explained in the New York Attorney General’s complaint, Defendants used interstate
wires and mail on numerous other occasions in furtherance of their fraudulent scheme.
DAMAGE TO PLAINTIFFS CAUSED BY DEFENDANTS’ ILLEGAL CONDUCT
86. Ritchie I and Ritchie II own the life insurance policies at issue. The market
value of those policies has greatly diminished since the New York Attorney General’s
action was commenced.
87. Each of the plaintiffs anticipated a profit from the planned sale of the
policies in a securitization transaction. For purposes of completing the securitization
transaction, RCM and the Investing Plaintiffs, with the support and encouragement of
Coventry, had obtained a pre-sale report and a rating from the Moody’s service on a
number of the policies.
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88. When the Attorney General’s action became public, Moody’s withdrew its
rating “in light of the uncertainty surrounding the transaction in light of the complaint
filed by the New York State Attorney General.”
89. On information and belief, Moody’s had lost confidence in the health of
the collateral – i.e., the policies. Specifically, Moody’s no longer believed in the
representations and warranties made by Ritchie I and Ritchie II to potential investors in
the securitization, which themselves relied on representations and warranties made by
Coventry to Ritchie I and Ritchie II. Moody’s, that is, no longer believed that the policies
had been purchased in compliance with applicable legal requirements.
90. Defendants’ misconduct has thus directly interfered with the salability and
value of the life insurance policies at issue. Defendants’ misconduct therefore harmed not
only the Contracting Plaintiffs, but the Investing Plaintiffs, which are beneficially
interested in the Contracting Plaintiffs and were owed independent fiduciary duties and
other duties breached by Coventry.
91. Ritchie I and Ritchie II continue to pay enormous amounts in premiums
and fees to service the policies, the salability of which has been impaired by Defendants’
misconduct.
92. Moreover, in or about June 2006, the Investing Plaintiffs committed
additional capital to the arrangement with Coventry. The June 2006 commitment was
known as “Ritchie IV.” The Ritchie IV transaction never resulted in the purchase of
policies, but the Investing Plaintiffs – which were induced to enter into the Ritchie IV
arrangement by Coventry’s fraudulent conduct in connection with Ritchie I and Ritchie
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II, including the representations described in paragraphs 55 to 58 and 71 to 79 above –
suffered substantial transaction costs and opportunity costs in connection with Ritchie IV.
93. The Investing Plaintiffs also incurred substantial transaction costs in
connection with the contemplated securitization transaction, which was the subject of
over a year’s worth of legal, financial, and accounting work.
94. The transaction costs relating to Ritchie IV and the attempted
securitization transaction are special damages suffered by the Investing Plaintiffs.
95. It was entirely foreseeable that Defendants’ misconduct would damage
Plaintiffs in these ways. Defendants represented that the policies had been purchased in
compliance with law. Defendants knew that Plaintiffs’ reason for purchasing and
investing in the policies was to realize a profit by securitizing and selling them.
Defendants also knew that they were participating in fraud on the owners of the policies –
fraud that, if it came to light, would greatly diminish the salability and value of the
policies and destroy the possibility of realizing a profit through the securitization.
Defendants therefore knew that they were creating serious risks for Plaintiffs.
96. Coventry First in substance was using Plaintiffs’ capital to acquire assets
that, because of Coventry First’s own misconduct, turned out to be worth far less than
what Plaintiffs had reason to believe they were worth. At the same time, Coventry was
profiting from its misconduct, because it sold the policies to Plaintiffs at prices higher
than those Coventry First paid.
97. Had Plaintiffs known that Coventry First engaged in bid-rigging and other
illegal practices, Plaintiffs never would have done business with Coventry, let alone
continued to commit additional capital to the arrangement with Coventry.
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COUNT ONE
(Violation of RICO, 18 U.S.C. § 1962(c) – by all Plaintiffs against all Defendants)
98. Each of the foregoing allegations is incorporated herein by reference.
99. There is an enterprise within the meaning of 18 U.S.C. § 1961(4)
consisting of (a) Coventry First, or, in the alternative, of (b) all of the individual
defendants.
100. The enterprise referred to in the preceding paragraph is engaged in
interstate commerce, as well as activities affecting interstate commerce, by purchasing
life insurance policies in several states, including California, Hawaii, Nevada, and
Florida, for the purpose of transferring those policies to Plaintiffs in other states.
101. Defendants are all persons within the meaning of § 1962(c), distinct from
the enterprises referred to in paragraph 99 (except that defendant Coventry First is
distinct only from the enterprise referred to in paragraph 99(b)), and employed by or
associated with that enterprise. Defendants did conduct or participate, directly or
indirectly, in the conduct of the enterprise’s affairs through a pattern of racketeering
activity within the meaning of 18 U.S.C. §§ 1961(1) and 1961(5) and § 1962(c), to wit:
(a) Multiple instances of mail fraud in violation of 18 U.S.C. § 1341;
and
(b) Multiple instances of wire fraud in violation of 18 U.S.C. § 1343.
102. Plaintiffs were injured in their business or property within the meaning of
18 U.S.C. § 1964(c) by reason of the violation of 18 U.S.C. § 1962(c) committed by
Defendants. Specifically, Plaintiffs were fraudulently induced to invest with Coventry in
life insurance policies that, because of Defendants’ racketeering activity, actually were
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worth, unbeknownst to Plaintiffs at the time, either nothing or a tiny fraction of what
Plaintiffs paid for the policies. Indeed, because of Defendants’ racketeering activities
Plaintiffs have received essentially nothing in return for their investment. Moreover,
Plaintiffs were injured when they committed capital to Ritchie IV and incurred
transaction costs in connection with the attempted securitization. Both Ritchie IV and the
securitization turned out to be abortive ventures because of Defendants’ racketeering
activities.
103. Plaintiffs were injured in an as yet undetermined amount, believed to be
not less than $700 million. Pursuant to 18 U.S.C. § 1964(c), Plaintiffs are entitled to
recover treble damages and the cost of this suit, including a reasonable attorney’s fee.
COUNT TWO
(Conspiracy to Violate RICO, 18 U.S.C. § 1962(d) – by all Plaintiffs against all
Defendants)
104. Each of the foregoing allegations is incorporated herein by reference.
105. Defendants were all persons within the meaning of § 1962(d) and distinct
from the enterprises referred to in paragraph 99 above (except that defendant Coventry
First is distinct only from the enterprise referred to in paragraph 99(b)). Defendants
conspired within the meaning of 18 U.S.C. § 1962(d) to violate 18 U.S.C. §§ 1962(c). In
particular, Defendants conspired to conduct or participate, directly or indirectly, in the
conduct of the enterprise’s affairs through a pattern of racketeering activity within the
meaning of 18 U.S.C. §§ 1961(1) and 1961(5) and § 1962(c), to wit:
(a) Multiple instances of mail fraud in violation of 18 U.S.C. § 1341;
and
(b) Multiple instances of wire fraud in violation of 18 U.S.C. § 1343.
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106. Plaintiffs were injured in their business or property within the meaning of
18 U.S.C. § 1964(c) in an as yet undetermined amount, believed to be not less than
approximately $700 million, by reason of Defendants’ violation of § 1962(d). Pursuant to
18 U.S.C. § 1964(c), Plaintiffs are entitled to recover treble damages and the cost of this
suit, including a reasonable attorney’s fee.
COUNT THREE
(Fraud – by all Plaintiffs against Coventry First, Montgomery Capital, LST,
Alan Buerger, Reid S. Buerger, and Alex Seldin)
107. Each of the foregoing allegations is incorporated herein by reference.
108. As detailed herein, Coventry First, Montgomery Capital, LST, Alan
Buerger, Reid Buerger, and Alex Seldin made material misstatements to Plaintiffs, and
omitted to disclose material information that they were obligated to disclose to Plaintiffs,
regarding (1) the circumstances under which owners of life insurance policies were
induced to part with their policies, and (2) the existence and target of the New York
Attorney General’s investigation into Coventry.
109. These misstatements and omissions were committed knowingly,
intentionally, and willfully, and were intended to induce Plaintiffs to rely on them.
110. Reasonably relying on these misstatements and omissions, Plaintiffs acted
to their detriment by investing in life insurance policies worth much less than Plaintiffs
had reason to believe they were worth, and committing capital to Ritchie IV and
attempting a securitization transaction. The Ritchie IV and securitization arrangements
resulted in special damages, as set forth above, that were a direct and proximate result of
Defendants’ fraud.
34
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111. As a direct and proximate result of Defendants’ fraud, Plaintiffs have
suffered damages in an amount believed to be not less than $700 million.
COUNT FOUR
(Fraudulent Inducement – by all Plaintiffs against Coventry First, Montgomery
Capital, LST, Alan Buerger, Reid S. Buerger, and Alex Seldin)
112. Each of the foregoing allegations is incorporated herein by reference.
113. As detailed herein, in connection with, among other agreements, the
Ritchie I Policy Purchase Agreement, the Ritchie II Policy Purchase Agreement, and the
agreements relating to Ritchie IV, Coventry First, Montgomery Capital, LST, Alan
Buerger, Reid Buerger, and Alex Seldin knowingly or recklessly made false and
misleading statements to, and knowingly or recklessly concealed information from and
did not disclose information to Plaintiffs regarding (1) the circumstances under which
owners of life insurance policies were induced to part with their policies, and (2) the
existence and target of the New York Attorney General’s investigation into Coventry.
114. Under the circumstances, Coventry had a duty to disclose the omitted
information.
115. The misstatements and omissions were intended to induce, and did induce,
Plaintiffs to act to their detriment in that (1) the Investing Plaintiffs caused the
Contracting Plaintiffs to enter into, and the Contracting Plaintiffs in fact entered into,
among other agreements, the policy purchase agreements, and (2) the Investing Plaintiffs
entered into the Ritchie IV arrangement and attempted a securitization transaction.
116. Plaintiffs entered into these arrangements to their detriment, as described
herein. The Ritchie IV arrangement and the attempted securitization, moreover, resulted
35
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in special damages, as described above, that were a direct and proximate result of
Defendants’ fraudulent conduct.
117. As a direct and proximate result of Defendants’ fraudulent conduct,
Plaintiffs have suffered damages in an amount believed to be not less than $700 million.
COUNT FIVE
(Breach of Fiduciary Duty – by RCM, Walkers SPV Limited, and Ritchie Risk-
Linked Strategies Trading, Ltd. against Coventry First, Montgomery Capital,
and LST)
118. Each of the foregoing allegations is incorporated herein by reference.
119. The Investing Plaintiffs were the partners, joint venturers, and co-
venturers of Coventry First and Montgomery Capital. The Investing Plaintiffs had
reposed their trust and confidence in Coventry First, Montgomery Capital, and LST,
which collectively occupied a position of superior knowledge and control with respect to
the purchase and servicing of life insurance policies.
120. The fiduciary duty owed by Coventry to Plaintiffs obligated Defendants to
make full disclosure of all material circumstances surrounding the purchase of life
insurance policies, and of the existence of the New York Attorney General’s
investigation.
121. Defendants concealed this information and thereby misled Plaintiffs to
their detriment in that they invested in life insurance policies worth much less than
Plaintiffs had reason to believe they were worth, and committed capital to Ritchie IV.
As a direct and proximate result of Defendants’ breach of fiduciary duty, Plaintiffs have
suffered damages in an amount believed to be not less than $700 million.
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COUNT SIX
(Breach of Contract – by Ritchie I and Ritchie II against LST, Coventry First, and
Montgomery Capital)
122. Each of the foregoing allegations is incorporated herein by reference.
123. Pursuant to the Ritchie I Policy Purchase Agreement and the Ritchie II
Policy Purchase Agreement, LST (an alter ego of Coventry First and Montgomery
Capital), represented, among other things, that:
(i) Coventry’s acquisition of policies was in compliance with all laws
and regulations, there was no proceeding pending or threatened
involving any agency or governmental body seeking to prevent the
transactions contemplated by the agreements or seeking a
determination that might affect the performance by Coventry of its
obligations;
(ii) before conveying the life insurance policies to Ritchie I or Ritchie II,
Coventry would take all reasonable actions under applicable law to
protect and perfect its ownership of the policy; and
(iii) Coventry acquired the policies directly from the insureds in
transactions that in all material respects complied with all applicable
laws, or acquired the policies from third parties in transactions that
to Coventry’s knowledge complied in all material respects with all
applicable laws.
124. Coventry breached its contracts with Ritchie I and Ritchie II in that these
representations and warranties were false as to some or all of the policies purchased by
Ritchie I and Ritchie II from Coventry.
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125. Plaintiffs have performed their obligations under the policy purchase
agreements.
126. All conditions precedent to Defendants’ contractual liability have been
performed or have occurred.
127. To the extent any written notice requirement set forth in the policy
purchase agreements is applicable, Plaintiffs have satisfied the requirement.
128. By reason of Coventry’s breach, Plaintiffs have suffered damages in an
amount believed to be not less than $700 million.
129. Plaintiffs are entitled pursuant to the policy purchase agreements to
rescind the life settlement transactions through which Coventry transferred the life
insurance policies to them.
38
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WHEREFORE, Plaintiffs pray for judgment against Defendants as follows:
(a) All damages proven pursuant to RICO, trebled as permitted by law;
(b) All other compensatory damages sustained by Plaintiffs;
(c) Punitive Damages, in an appropriate amount to be determined at trial;
(d) Rescission of the relevant life settlement transactions between
Plaintiffs and Defendants;
(e) Attorneys’ fees and costs;
(f) Prejudgment and post-judgment interest; and
(g) Such other relief as the Court may deem just and proper.
39
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40
Respectfully submitted,
LAW OFFICES OF THOMAS P. PUCCIO
Thomas P. Puccio
230 Park Avenue
New York, NY 10169
Tel: (212) 883-6383
Fax: (212) 883-6388
ROBBINS, RUSSELL, ENGLERT,
ORSECK & UNTEREINER LLP
By: _______________________________
Lawrence S. Robbins (LR-8917)
Gary A. Orseck
Rachel S. Li Wai Suen
Daniel R. Walfish
1801 K Street, N.W.
Suite 411
Washington, D.C. 20006
Tel: (202) 775-4500
Fax: (202) 775-4510
Counsel for Plaintiffs
Dated: August 24, 2007
Washington, D.C.
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