FKSA attorneys successfully appealed to the Second Circuit Court of Appeals the dismissal of claims by a group of ninety-some investors in the Lancer offshore hedge funds against the funds' prime broker, Banc of America Securities, LLC. The plaintiffs had alleged that the prime broker aided and abetted the fraud and breaches of fiduciary duty of the funds' manager, Michael Lauer and Lancer Management. The District Court dismissed the claims, holding that the plaintiffs had failed adequately to plead that the prime broker's conduct proximately caused the plaintiffs' losses. In a seventeen-page decision written by Judge Pierre N. Leval, the Second Circuit vacated and remanded the claims, finding as follows:

The complaint includes that BAS knowingly and substantially assisted Lauer and Lancer Management in deceiving Plaintiffs as to the net asset values of the Funds by falsifying the values of the Funds' holdings on Position Reports, which BAS knew would be relied upon by the Funds' auditor and administrators in calculating and verifying the Funds' net asset values ("NAVs"). It alleges further that the Plaintiffs "reasonably relied upon the [false] representations regarding the Funds' NAVs [net asset values] . . . in deciding to invest in and/or remain invested in the Funds," and that the falsely inflated net asset values were used to justify the payment of fees to Lauer, Lancer Management, and others, which drained the assets of the Funds. In our view, the complaint sufficiently pleaded that BAS's actions proximately caused the Plaintiffs' losses.

The decision establishes important new precedent to hold hedge-fund service providers accountable for knowingly and substantially assisting the bad acts of hedge-fund managers. The decision also appears to be the first by the Second Circuit discussing the application of the recent United States Supreme Court decision in Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937 (2009), which addressed the pleading standard on a motion to dismiss.

FKSA attorneys Scott M. Berman, Amy C. Brown, Anne E. Beaumont, Robert S. Landy, and Lili Zandpour represent the plaintiff investors.