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Dark Souls: Prepare to Die Edition
FAQ/Walkthrough by TheWhiteRice
Version: 1.00 | Updated: 10/27/11 | Search Guide | Bookmark Guide
- First Page
- Previous Page
- Page 3 of 3
Table of Contents
- Intro
- Walkthrough
- Mechanics
- Undead Asylum
- Firelink Shrine
- Undead Burg
- Undead Parish
- Darkroot Garden Part 1
- Undead Parish Part 2
- The Depths
- Blighttown
- Quelaag's Domain
- Optional Areas
- Sen's Fortress
- Anor Londo
- Optional Areas
- Demon Ruins
- Lost Izalith
- Darkroot Garden Part 2
- New Londo Ruins
- The Abyss
- The Duke's Archives
- Crystal Cave
- The Catacombs
- Tomb of the Giants
- Optional Areas
- Kiln of the First Flame
- Weapon/Armor Specs
- Misc
- Version History
- Contact
- Legal
- Credits
Walkthrough (Continued)
New Londo Ruins
Hmm. Nasty place. Ghosts. Bad.
But you have to do it anyway. Make sure you have some transient curses before attempting this. You can get two from the corpse in the barrel just before the bridge to the ruins proper.
I'll assume you can make it to there on you're own, as it's really the only path you can take that doesn't lead to another area.
So, go ahead and cross the bridge, and use a transient curse when you can. There should be two ghosts here, so go ahead and kill them. Be careful, as their attacks are quick and they have a grab attack that is unblockable.
Once they've died, you can take a right and then another right to see some loot across a narrow path. Grab it if you want, its a fire keeper soul.
Anyway, head up the stairs across from the wood bridge when ready, and kill the ghost to the left as you get to the top. You should also slay the ghost straight ahead as you reach the top of the stairs.
Head over the small stone bridge into the structure. Kill the ghost to the left in the corridor. Continue forward, but be wary as a number of ghosts will ambush you as you enter the next room. Dispatch them however you need to, and then continue forward and down the stairs.
From the bottom of the stairs you can continue straight forward for some loot, otherwise take a right at the bottom of the stairs and continue until you can take another right into another staircase. Continue up these stairs and kick the ladder that's right at the top, then continue through the archways to the next staircase.
Head down the staircase into the pathway adjacent to the building. Be wary, as a number of ghost will come out of the water to your left. Once dead, continue and take a right into the building, continue into the next room and take a left. Be wary, as in here a large number of ghosts will all enter at the same time. Once dead, head into the back of this room to locate a ladder inside the fireplace. Climb up the ladder and talk to the mand on the roof to recieve a key that allows access to the rest of the ruins.
Once you have the key, head back down the ladder and into the next room. From here, take a left into the hallway. Continue down this hallway to find some loot, and at the end drop down onto the staircase and head down.
Head outside and take a left when you can onto the staircase, and continue to find some loot. When done, head back and go up the staircase, and then along the path against the wall.
Continue until you can take a right and head up another staircase to find some goodies, if you so choose. Otherwise continue along this path into the stone tower.
Once inside the stone tower you can head up the stairs and explore this area to find some new equipment, or head down the stairs and through the iron gate to find the switch that will lower the water level.
Once you've lowered the water level, head back into the tower and pull the lever, and then ride the elevator down to the bottom floor. Once at the bottom, head outside. You will now be attacked by your newest foe. These fine fellows are known as the Darkwraiths, and they hit very hard but are vulnerable to backstabs. It is important to fight them one on one, as fighting multiple Darkwraiths will almost certainly result in your painful death.
Continue up two more sets of stairs and into a wooden building, where you will meet yet another Darkwraith. Kill it, and continue through and outside, and then into the large stone building ahead.
Be wary, as there are a number of Darkwraiths in here, as well as a new, larger enemy. Kill the Darkwraiths one at a time, and when you can, take a look at the large enemy. It can spit out exploding skulls, and has a nasty bladed appendage that will protrude from its front when it attacks.
It is vulnerable to pyromancy, but simply slashing at it will work too. Just be careful not to get hit, as it will be quite painful.
Anyway, once all enemies have been slain, go ahead and climb up the spiral staircase on the right once you enter the stone building. Once at the top, you can head forward for loot, then head in the other direction (right as you exit the staircase). Continue forward and up the next staircase, then explore a tad up here to find a chest with a very large ember in it.
Once all loot has been looted, head back down and out out of this building, via the exit across from the archway you came in through. Now you should be in a watery area.
Take a left and head up the short set of stairs, then slay another Darkwraith. There is a stone archway near here that you can strike to find a secret area, with a chest gaurded by another Darkwraith.
Once that's been taken care of, explore a bit more to find some loot on a corpse that is hanging over the edge of a well. Once done with that, head up the stairs in this area to find another creepy skill/slime thing, two more darkwraiths, and a number of ghosts.
Kill everything one at a time, and once everything is dead, head through this building and outside once more. Take a right around the corner to find another Darkwraith.
Now, when you're ready, head over to the fog wall across the short stone bridge and pass through to find the boss area.
Once through, equip the right you got from Sif, and hop off the staircase, such that you fall down the middle of the tower. You will land in the abyss.
The Abyss
So, as soon as you land, the battle with the four kings will begin.
Boss Battle: The Four Kings
Strategy 1 - Difficulty: Intermediate-Hard
This, if unprepared, can be the most difficult fight in the game. Basically it will proceed like this. Every so often, a new king will appear, and if you have not yet killed the last one, then you'll have two to contend with. That said, it is imperative that you kill each king as he appears before the next shows up.
To accomplish this, suit up in the heaviest set of armor you can, run up to the first king, get as close to him as you can, and just wail on him with your weapon. Two-handing is recommended.
Don't block. Just take his hits, and if your armor gives enough poise, you can just keep laying on the pain. Hopefully he will die shortly, and you will have a chance to heal.
Once the first king falls, wait for the next one, or if the next already appeared while you were killing the first, run over to him and start up the killing.
Basically, just beat them down as they appear so that you never have to deal with more than one. Hopefully you can kill them fast enough, and if so, this fight will not be difficult. If you are a little slow, however, you may have to deal with two at the end of the fight, which is where the difficulty comes from.
Just proceed by focusing on one at a time, and you will triumph.
Once they die, a bonfire will appear. Rest at it, and use it to teleport out of the abyss.
The Duke's Archives
Alright. So from the Anor Londo first bonfire, take a left and continue along this path until you reach a hallway with an armored boar at the end. You'll have to fight past one of the Sentinals to get there, but by now that should be easy for you.
Once at the hallway, move up until you piss the boar off, then either dodge it or run back to the entrance. Either way, kill the boar. Pyromancy is very effective for this.
Once dead, continue down the hallway to meet another boar. Kill this one via similar tactics. Once he falls, keep going into the next room and rest at the bonfire there.
When ready, walk over to the elevator in this room (wierd platform with lever), and use it to go up. When it stops, you'll meet the most common enemy for this area, the crystallized hollow. These guys hit hard, but are slow and easily dodged and/or blocked. They are also very easy to backstab.
Anyway, in this room, theres quite a few. Take em one at a time, and make sure and kill the one shooting arrows at you from the top of the stairs. Once all the hollows in this room have perished, continue to the next room.
This room has more hollows, plus a staircase for extra fun. There is also a spellcaster in this room, so take him out quickly. He may teleport away when attacked, so just stay on him and get it over with quickly.
Once all the enemies here are dead, head up the stairs and kill those on the catwalks. Then look around for a chest at the end of the catwalk if you want. There is also a balcony you can find that has some loot on a corpse.
Whatever. Once finished there, use the elevator on the second floor to rise up into the next area. Once at the top, continue down the hallway to meet a crystal knight. Be careful and block. Once he dies, continue up the stairs to the fog wall. Head through and lose.
No seriously. You can't win this fight. You WILL lose. And I don't think you can get the souls or humanity you lose here back either. Yeah. Ugh. Somebody tell me if there is a way to skip this. Please.
Anyway, once you've been killed, you'll respawn in a cell in a new room. There is a bonfire right next to you that I sugest you make use of. Once rested, you can kill the crystal hollows in the same cell, or kill the snake-man through the bars and loot him for the key.
Once you have the key, let yourself out. You will watch a scene where a bunch of strange wierd things get pissed of by some strange noise. All the snake-men will flee past you, and try and climb the ladder. Kill them or let em go. Doesn't matter.
Indeed, whatever you do, when ready, head down the giant spiral staircase you're on and slay any of the strange creatures that get in your way. Once you reach the bottom, climb up the nearby ladder and kill the three snake-men on the balcony, then pull the lever to shut the sound off.
Once you have done this, the strange creatures should no longer be hostile, but kill em anyway. Also, there is a chest on the balcony near the back that holds a key.
Once you have said key, you should head back up the staircase to the ladder at the top, and climb it. Use the key to unlock the door here and head into this area.
Once you step onto the next balcony, be wary of the hollow on the right. Kill him, then head left and kill the two hollows in the next room (one with a bow). Once this is done, continue up the stairs and back into the archives.
To your left should be another spellcaster. Kill him. Then continue forward through the archway to the next library section. Once there, you can climb up the staircase in the center and turn the handle in the middle of it to rotate the staircase.
Once rotated, climb down the staircase. (should be the other side from where you got on the staircase). Now take a right and head through the archway to the first library section. Now you should be able to board the staircase here and rotate it, so do so if you please. Otherwise you can just head into the first left as you enter this first section again.
Once you do, climb down the ladder to the right. Once down here, explore the room straight ahead (not the one with multiple chests), and once you have the loot from it, return to the ladder room and pull the lever.
Once you do this, the wall ahead will move out of the way. Head into the room you just revealed and take a left to find a balcony with another bonfire on it. Rest and return to the ladder room, then go into the room with multiple chests. Loot them all, then pull the lever by the strange section of floor to reveal a staircase.
Head down and kill the hollow here, then head outside and down the ladder. Now head down the hill, killing the crystal golems as needed (they're very slow), until you reach the giant crystal hole in the ground. head into it via the giant crystal.
Crystal Cave
Right. So now continue down the crystal and take a right, and kill the crystal golem that is there. Now continue along this path, until you come to an area where there is a small cave, and to the right of it is a solid path.
Notice in the cave the strange particles. These are landing on something, no? You can actually walk through this cave, on an invisible crystal, to get some loot.
Once done, continue, heading down the side of one crystal, and then all the way to the far end of the platform here. You should notice a section of the platform facing the cliff that has smaller crystals framing both sides. This is part of a large invisible crystal. Note the little particles again.
Head down this invisible crystal to the large one in the distance, then down that large one to the platform. On the side of this platform that has the butterfly (roughly), you should jump off. You will land on another invisible crystal. Note the particles once more.
Now head forward on this invisible crystal, (its a long one), to the area waaaay over there. Once there, take a right and then a left into an area with a number of creepy clam things. Kill them (they're slow also), and then head to the end of this chamber (no fog wall) to engage the boss.
Boss Fight: Seath the Scaleless
Strategy 1 - Difficulty: Intermediate
Right. So first of all, go and hit the crystal at the far end of the room. This will stun Seath and will also stop him from regenerating health. Once you have done this, the fight is really not all that bad.
Seath's attacks are simple. Most will involve creating crystals underneath you (they cause curse, so be wary), but it's not all that hard to get out of them. If you go behind him, he has a number of tail attacks, all of which are deadly. I do not recommend this.
Anyway, really all you have to do is block and dodge when prudent, and otherwise beat on him. Lightning is a plus as he is weak to it. Just keep at it till he dies.
You're done here. Use the bonfire that just got created to warp to Firelink.
Go to Andre and get a divine weapon if you don't have one already. When ready, head to the Firelink graveyard and follow the main path here, then down some stairs to enter the Catacombs.
The Catacombs
So, if you don't already know, if you kill a skeleton with anything other than a divine weapon, it can reform and continue to kill you. So use a divine weapon. Please.
Anyway, once in the catacombs, be wary of the exploding skulls on the left. Follow the path against the wall to the next area, where you can climb down a ladder after killing a skeleton.
Once down, two more skeletons will appear. Kill them and continue through the nearby hallway, and at its end, take a left. Head down the left path to find a bonfire. Be wary as it's gaurded by a pyromancer.
Once rested, pull the lever next to the bonfire to open a set of nearby doors. Once done, head back into the previous room and head out the doors you just opened.
Once out here, be wary of the pyromancer that will be firing upon you. Head along the path, killing the skeletons as needed, and into the area that has the pyro. Kill him, and continue along the path until you reach a spike bridge. Note that there are a number of side rooms, but none that go very far. Explore till you find the bridge.
Once at the bridge, head along the cliffside path to find another lever. This one will turn the bridge so that it can be walked on. Head back to the bridge and head across.
Now go inside and make your way down the spiral staircase. Continue down it until you find a side room with another lever. Pull it and head back up the staircase until you reach the flat area (not all the way up, just to where there is another floor). There should be a door that just opened, so go through it.
Once through take a quick left and continue outside. Take another left and climb up the ladder to meet an NPC. He's an asshole. Trust me.
Anyway, he should have pulled the lever for you, so head back down the ladder and hit the wall next to it to reveal a path to another bonfire. Rest.
When ready, head back down and then sprint across the bridge. If you didn't kill the NPC, then he will push the lever, flipping the bridge, while you're on it. If you're quick, you can make it across before it flips.
Now you should be in a room with yet another spiral staircase. Head down it, and then outside again. Follow the cliffside path, killing the skeletons and avoiding the exploding skulls, till you reach the other side and can continue down the tunnel.
Do so, and before long you'll see a titanite demon in the distance. Kill it if you want, but the way you need to go is to the right before you get to him.
So, once you have taken the right, climb down the ladder and kill the two skellies. Be wary as the part of the floor right before the coffin will fall out when stepped on. Once the skellies are dead, you'll want to fall through that hole.
Once you do, you'll be assaulted by a black knight. Kill him and then exit this room onto a terrace. Drop to another one and then finally to the floor. There are a number of wheel skeletons here. Be wary, as they will roll toward you and if not blocked or dodged, they will do substantial damage.
Kill them or simply run, but either way, make your way to the other end of this large room (toward the canyon), and follow the path to a new room with a drop.
Drop down to face the boss.
Boss Fight: Pinwheel
Strategy 1 - Difficulty: Depends on when you're doing this fight
If you have followed this guide exaclty, just hit him a few times and he will die. I only needed 5 slashes to kill him.
I could use somebody's input as to how to kill him when down here at substantially lower levels. Thanks!
Once he dies, head to the ladder on the right side of this room and climb up, then climb yet another ladder to enter the Tomb of the Giants.
Tomb of the Giants
I hate this place. It's dark, for starters, and filled with tough enemies. If you did Lost Izalith before this, I highly recommend equiping the sunlight maggot so that you can have a reasonable ammount of light here.
Anyway, follow the prism stones (little glowy things) across the stone bridge to meet a giant skeleton. Kill it, and continue along the path. You will eventually come to a stone bridge that is at a sharp angle. Slide down it, and kill the giant skelly down here.
Now slide down yet another bridge and take a right. Kill the two giant skellies that appear here and continue along the path to find another angled bridge. Slide down this third one, and once on the ground, go left to find a ladder leading to another bonfire.
At this point you have a number of choices. Head up the ladder and go right to find a path that leads to a building with a hole in the roof with a ladder. Climb down to find 5 giant skeletons gaurding a large divine ember. Get it if you want.
Otherwise, from the bonfire ladder, head forward and hug the right wall. Head toward the fog wall in the distance. Once you get there, pass through. You, may or may not have encountered a dog like giant skeleton. These guys attack quickly and hard, put don't have much life. Kill them fast.
Anyway, once you're through the fog, you will be assaulted by another black knight. You might want to kill the giant archer in the back of this area before tackling the knight, but either way, once both are dead, head to the back of this area and notice the ramp heading downward.
Head down and follow the path to the right for some loot. Otherwise take the left side path and hug the left wall to find the path to another bonfire.
Rest, and head back. You should notice a ramp on the left leading farther down. Take it. Continue to find an area with three skelly dogs, then keep going by hugging the right wall to find the new path. Continue along this path (don't move to the right and onto the other path unless you want loot), until you come to a ladder.
Head down the ladder, and follow the path into the tunnel and continue. You will eventually come to a place where a bone worm will pop out of the ground. These guys are not tough, but can be irritating. Kill it and keep going.
You will soon come across two giant skellies, one with a bow. Kill them. Continue into the next tunnel to reach a cave with a number of Pinwheel-like creatures and a slew of baby skeletons in the water. Traverse the area killing as you need to till you reach the other side of the pond.
Once on the other side, continue up the path until you find a group of branches blocking the way forward. Do not go through them unless you are ready for the boss. If you are, then move on.
Boss Fight: Gravelord Nito
Strategy 1 - Difficulty: Intermediate
Right. So you drop in to the area, and Nito gets pissed. Now don't move. Seriously. Stop. Wait for him to come to you, because the other end of this chamber has a number of giant skellies that will complicate the fight unnecessarily.
Just wait for him to come to you, killing any standard skeletons that attack, and once he arrives, start the beatdown.
Nito has a number of attacks. Most consist of swings of his sword, but he may also use an AOE (area of effect) attack that does quite a bit of dammage. You can tell when this happens as he will raise his sword in the air in a very specific way.
Otherwise this is probably the easiest of the late game bosses, just keep pounding him till he falls.
Once he dies, use the bonfire at the back of this area to teleport to Firelink. Then head down to the lordvessel (speak to frampt, the giant snake thing, if you haven't placed it yet), and give it all the souls you have aquired.
The door will open, allowing you access to the last area of the game.
Optional Areas
Coming Soon!
Kiln of the First Flame
Oh yes, the end is in sight. Head down the stairs and into the open. Really there's only one way to go till you hit the boss, with a total of 5 (respawing) black knights between here and there. If you need to upgrade weapons and armor, now is the time. The knights have garunteed drops on various kinds of titanite chunks.
Anyway, head forward, kill the sword knight. Head forward, kill the greatsword knight. Head forward onto the narrow bridges. Kill the sword knight. Head forward to the staircase and go down. Kill the axe knight. Head down more. Kill the halberd knight.
Now, when ready, step through the fog.
Boss Fight: Gwyn: Lord of Cinder
Before I tell you what you should do, let me tell you what he does. As soon as you enter, he will pound you. He will not stop pounding you. He seemingly has no stamina limit, and his sword is very very painful.
He will leave no openings. Ever. Except maybe a half second where you might be able to poke him once. That's it. And before he dies, you'll mess up or get killed some other way.
So yeah.
Strategy 1 - Difficulty: I wish you luck
So he gives no openings. Make your own. The best I can say here is parry and riposte the entire fight. If you need practice, then do so, but this is literally the only way I have ever beaten this guy.
It should take no more than 6 ripostes with a good weapon.
Good luck, and godspeed.
If you manage to win, I feel it is my duty as the guide writer to let you take the final step on your own. That said, well done. You have completed one of the hardest games out today, if not the hardest. You died countless times, and screamed at the TV more times than you want to admit.
But it was worth it.
Weapon/Armor Specs
Alrighty then. Here are basic specs for weapons and armor in game, and this list is by no means exaustive. It's a work in progress, and if you need more, you're far better served by the online wikis that do this. What follows is a basic description of the class of item (but not of each one), and my take on its functionality. Also, there will be a small table that includes its base damage, stat scaling, and requirements for use. If you need upgrade stats, use a wiki.
Stuff Soon!
Items, merchants, covenants, and other goodies!
Coming Soon to a guide near you!
Undead Male Merchant
This guy is located past the spear hollows near the bonfire in the Undead Burg.
Notable Items:
- Orange Soapstone
- Set of Chainmail
- Repair Box
- Standard type arrows and bolts
- Residence Key
- Other Misc. Items and Weapons (low level stuff)
When killed, drops the residence key, orange soapstone, and the katana Uchigatana. This is good if you don't mind never having access to him again.
Ranks and Betrayal costs coming soon!
Way of White
How to Join
Talk to Petrus at the Firelink Shrine. He is in the room with all the pots.
You will be paired more easily with other members of this covenant, and some spells will work for all memebers of a party if they are all in the covenant.
Warrior of Sunlight
How to Join
There is a faith base requirement of 50. Every time you defeat a boss as a phantom in another players world, this requirement drops by 5. Once your faith is above the required, pray at the sunlight alter in the Undead Parish. This is located under the Hellkite (dragon).
You are paired more easily with other members of this covenant. You will appear as a gold phantom when summoned for jolly cooperation, and when you defeat the area boss, all players who helped get a sunlight medal.
Forest Hunter
How to Join
Talk to Alvina the cat in Darkwood Garden. He is located in the small stone structure past the sealed door, in a window.
You get a ring that when worn, puts you in a queue to invade players in this area of the forest who are in human form.
Chaos Servant
How to Join
Talk to Quelaag's sister, (the white spider thing) near the bonfire in Quelaag's Domain.
You get some new pyromancy for joining, and can later unlock a very useful shortcut for Lost Izalith.
Blades of Darkmoon
How to Join
You must have the Darkmoon Seance Ring, which is in the catacombs, equiped. Then, move the elevator in Anor Londo to it's lowest level to enter the shrine. Then, with the ring equiped, head down the stairs and DO NOT go past the fog wall, but pray to join.
You get the blue eye orb, which lets you invade the worlds of players who have betrayed their covenants. Also you get a ring which will allow you to invade players in Anor Londo if they killed Gwynevere.
Princesses Gaurd
How to Join
Talk to Gwynevere.
You will receive a number of new miricles, and you are also matched easier with other players in this covenant.
Gravelord Servant
How to Join
In the catacombs, in the room with the Titanite Demon, there is a coffin you can rest in. Do so for some time to be transported to an area in the Tomb of the Giants, if and only if you have any eye of death in your inventory. Then pray before Nito.
You may use eyes of death to summon monsters into other three other player's worlds, though you also leave your summon sign avalaible so that if thy find it they may invade you. If the players die, you get half their souls and eyes of death.
This is currently broken, and rarely works.
Path of the Dragon
How to Join
Speak to the dragon at the end of the path in Ash Lake.
You get the dragon headstone which allows you to change your head into that of a dragon and breathe fire, and you get the eye of the dragon, which allows you to invade players who have dragons scales in their inventories, and fight them for the scales.
How to Join
Get the lordvessel then do NOT talk to Framps the primordial serpent (the one who is in Firelink). Instead, proceed to New Londo, talk to the man on the roof to recieve the key to lower the water, and make your way to the bottom where the 4 kings fight is.
Kill the 4 kings (requires the ring from Great Grey Wolf Sif).
Talk to Kaathe, the serpent in the abyss (only appears if you have the lordvessel in your inventory).
Recieve the Red Eye Orb, which is like it's cracked counterpart, but has infinite uses.
More Info Soon!
I just KNOW thousands of you are here to get a simple question answered. Hopefully its here and you won't have to e-mail me about it, but if its not, feel free.
I'm cursed and don't know what to do!
Yummy. So, depending on where you are, you have some options.
1) Go to New Londo ruins and get it cured for free, but contend with ghosts that will probably devastate, destroy, demoralize and most certainly ruin your relationships with friends and family before you before you find the healer.
2) Pay 6000 souls to purchase a purge stone from the merchant in the Firelink aquaduct. You can farm easy enemies till you have enough.
3) Pay 3000 souls to purchase a purge stone from the merchant in the bottom of the first bell tower. Probably the better option, unless you're lazy.
4) Kill the Creepy-Five-Legged-Clam-Oyster-Death-Things until one drops a purge stone. Use it.
How do I get the drake sword?
Well. Know the dragon that almost certainly roasted you into a undead steak? Well, go under the bridge that its sitting on, and pull out a short/longbow. Then, take some arrows (perhaps 30 or 40), and load them into the creatures tail, which dangles over the edge on the right side. Get it enough and it will fall off getting you the drake sword. Just please stop using it after you get past Blighttown.
How do I join covenant <insert name here>
See the section on covenants in the Misc. section.
How do I get past boss <insert name here>
Find it in the guide. There are several strategies listed for each.
Why can't I summon/be summoned/invade/whatever?
You're either at such a level that it doesn't match with the people in the area you're in, or you're using an item that's broken, like the eye of death or the blue eye orb. Both work horribly.
Where is the item <name here> or the weapon <name here>?
If it's not in the items section, (use ctrl-F), then look online. If not there, e-mail me.
Version History
1.00 (date here)
- Initial Release, focus on walkthrough, other areas lacking.
- Finally done with basic walkthrough. The rest to come soon. Wow. That took
- a while.
If something is wrong, or you'd like to add, contact me!
I will endeavor to answer all e-mails provided they have something such as 'Dark Souls Guide' in the subject and have coherent content.
Permission is granted to make and distribute verbatim copies of this entire document without royalty or permission provided the copyright notice and this permission notice are preserved.
Please, however, send notice to me that you will be using this document. Contact me via the e-mail address above
copyright 2011 Conor Rice
All trademarks and copyrights contained in this document are owned by their respective trademark and copyright holders.
From Software
- For making this outstanding game.
Me (Conor Rice)
- For taking the time to write this guide.
Sierra Atkins
- For playing through for me, and evaluating the usefulness and clarity of
- the guide.
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|Home > Features > Issues > Iraq > Article
The US military, the CIA and Iraqi exiles began a broad covert effort inside Iraq at least three months before the war to forge alliances with Iraqi military leaders and persuade commanders not to fight, people involved say.
Even after the war began, the Bush Administration received word that top Iraqi Government officials, most prominently Saddam's defence minister, General Sultan Hashem Ahmed al-Tai, might be willing to co-operate to bring the war to a quick end and to ensure a postwar peace, present and former American officials say.
Hashem's ministry was never bombed by the United States during the war, and the Pentagon's decision not to knock Iraqi broadcasting off the air permitted him to appear on television with what some Iraqi exiles have called a veiled signal to troops that they should not fight the invading allies.
But Washington's war planners elected not to try to keep him or other Iraqi leaders around after the war to help them keep the peace, a decision some now see as a missed opportunity.
General Hashem's fate is not known. Much more than that is uncertain about the murky operation.
People behind the effort, including Iraqis who were involved inside the country, said they persuaded hundreds of Iraqi officers to quit the war and to send their subordinates away.
Iraqi military officers confirmed that, after being contacted by Americans and Iraqis, they carried out acts of sabotage and helped disband their units as the war began.
- New York Times
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SAN DIEGO ---- The sale of the Padres is expected to top $800 million, according to multiple reports on Thursday.
Bidders had to make a qualifying offer of at least $800 million to reach the final cut, according to CBSSports.com.
A group that includes Peter O'Malley and PGA Tour star Phil Mickelson is among the finalists.
The Los Angeles Times also listed Gary Jabara, the founder of a Newport Beach wireless company, and Steve Kaplan, the principal at Oaktree Capital in Los Angeles, as finalists for Padres ownership.
Padres majority owner John Moores agreed to sell the team to Jeff Moorad for $530 million in January 2009, but that deal fell through earlier this year.
The franchise was valued at $458 million by Forbes in March.
A source told CBSsports.com that Moores is asking for $600 million for the Padres and $200 million for a piece of the organization's new TV deal with Fox Sports. Finalized in April, the team's deal with Fox is expected to pay out $1.2 billion over 20 years.
Jabara is the CEO of Mobilite, a company that owns, manages and develops cell phone towers, the L.A. Times said.


text:
In re Bernard L. Madoff Investment Securities LLC, ___ B.R. ____, 2011 WL 3274077 (Bkrtcy.S.D.N.Y., Aug. 1, 2011).
United States Bankruptcy Court,
S.D. New York.
In re BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Debtor.
Irving H. Picard, as Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff,
Cohmad Securities Corporation, et al., Defendants.
Bankruptcy No. No. 08–01789(BRL).
Adversary No. 09–1305 (BRL).
Aug. 1, 2011.
Baker & Hostetler LLP, David J. Sheehan, John W. Moscow, Marc E. Hirschfield, Oren J. Warshavsky, New York, NY, Attorneys for Plaintiff Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff.
Vinson & Elkins LLP, Clifford Thau, Steven Paradise, Joseph F. Kroetsch, New York, NY, Attorneys for Defendants Cohmad Securities Corporation, Maurice J. Cohn, Marcia B. Cohn, Milton S. Cohn, and Marilyn Cohn.
Butzel Long, P.C., New York, NY, Eric B. Fisher, Siegel, Lipman, Dunay Shepard & Miskel, LLP, Boca Raton, FL, Kenneth Lipman, Attorneys for Defendants Richard Spring, The Spring Family Trust, and The Jeanne T. Spring Trust.
Coppel, Laughlin, Blount & Lavin, LLP, Mark A. Blount, John J. Lavin, Chester, NJ, Attorneys for Defendants Alvin J. Delaire, Jr. and Carole Delaire.
Drohan Lee, LLP, Vivian R. Drohan, New York, NY, Attorneys for Stanley Mervin Berman, Joyce Berman, and the S & J Partnership.
Rattet, Pasternak & Gordon Oliver LLP, James B. Glucksman, Harrison, NY, Attorneys for Defendant Jane Delaire a/k/a Jane Delaire Hackett.
Hoffinger Stern & Ross, LLP, Jack S. Hoffinger, Fran Hoffinger, New York, NY, Attorneys for Defendants Cyril Jalon, the Estate of Elena Jalon, The Joint Tenancy of Phyllis Guenzburger and Fabian Guenzburger, and The Joint Tenancy of Robert Pinchou and Fabian Guenzburger.
Edward H. Kohlschreiber, Edward H. Kohlschreiber Sr. Rev. Mgt. Trust, Pro Se.
BURTON R. LIFLAND, United States Bankruptcy Judge.
Like Icarus, were the Cohmad Defendants singed by flying too close to the sun? FN1
FN1. Icarus, a Greek mythological figure, attempted to escape imprisonment on the island of Crete by means of wings constructed from feathers and wax. Despite his father's warnings, Icarus giddily flew higher toward the bright [Madoff] sun until it ultimately melted his wings of "innocence," sending him to his fate in the sea below. See http:// http://www.pantheon.org/articles/i/icarus.html (last visited Aug. 1, 2011).
*1 Before this Court are the motions (the "Motions to Dismiss") of (1) Cohmad Securities Corporation ("Cohmad"), Maurice "Sonny" J. Cohn ("Sonny Cohn"), Marcia B. Cohn ("Marcia Cohn"), Milton S. Cohn ("Milton Cohn") and Marilyn Cohn; (2) Richard Spring, The Spring Family Trust and The Jeanne T. Spring Trust; (3) Jane M. Delaire a/k/a Jane Delaire Hackett; (4) Stanley Mervin Berman ("Berman"), Joyce Berman and the S & J Partnership; (5) Alvin "Sonny" Delaire, Jr. ("Delaire") and Carole Delaire; (6) The Joint Tenancy of Phyllis Guenzburger and Fabian Guenzburger (the "Guenzburger Tenancy") and The Joint Tenancy of Robert Pinchou and Fabian Guenzburger (the "Pinchou Tenancy," and together with the Guenzburger Tenancy, the "Tenancy Defendants"); (7) Cyril Jalon ("Jalon") and the Estate of Elena Jalon; and (8) Edward H. Kohlschreiber and Edward H. Kohlschreiber Sr. Rev. Mgt. Trust (collectively, the "Moving Defendants") FN2 seeking to dismiss the amended complaint (the "Complaint") of Irving H. Picard, Esq. (the "Trustee" or "Plaintiff"), trustee for the substantively consolidated Securities Investor Protection Act FN3 ("SIPA") liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") and Bernard L. Madoff ("Madoff"), filed pursuant to SIPA sections 78fff(b) and 78fff–2(c)(3),FN4 sections 105(a), 502(d), 542, 544, 547, 548(a), 550(a) and 551 of the Bankruptcy Code (the "Code"), various sections of New York Debtor and Creditor Law FN5 (the "NYDCL") and other applicable law for turnover and accounting, preferences, fraudulent conveyances, damages, and objections to SIPA claims.FN6 The Motions to Dismiss assert that the Complaint fails to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6), made applicable herein by Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7012, and should be dismissed.
FN2. The following defendants have not moved to the dismiss the Complaint: Jonathan Greenberg, Morton Kurzrok, Linda Schoenheimer McCurdy, Rosalie Buccellato, Janet Jaffin individually and in her capacity as Trustee of The Janet Jaffin Dispositive Trust, Milton Cooper in his capacity as Trustee of The Janet Jaffin Dispositive Trust, and Elizabeth Moody. Additionally, pursuant to a settlement agreement dated December 7, 2010, the Trustee agreed to withdraw all claims against Robert M. Jaffe and M/A/S Capital Corporation in exchange for $38 million. See Stipulation of Dismissal With Prejudice. Dkt. No. 183. Further, Gloria Kurzrok was dismissed without prejudice by so-ordered Stipulation dated April 12, 2010. Dkt. No. 155.
FN3. 15 U.S.C. sec. 78aaa et seq. Hereinafter, "SIPA" shall replace "15 U.S.C." in references to sections of SIPA.
FN4. A SIPA trustee's authority to utilize the Code and the NYDCL derives from SIPA sections 78fff(b) and 78fff2(c)(3). SIPA section 78fff(b) provides that "[t]o the extent consistent with the provisions of this chapter, a liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of Title 11." SIPA sec. 78fff(b). Similarly, SIPA section 78fff–2(c)(3) allows a SIPA trustee to utilize the avoidance powers enjoyed by a bankruptcy trustee: "Whenever customer property is not sufficient to pay in full the claims set forth in subparagraphs (A) through (D) of paragraph (1), the trustee may recover any property transferred by the debtor which, except for such transfer, would have been customer property if and to the extent that such transfer is voidable or void under the provisions of Title 11." SIPA sec. 78fff–2(c)(3).
FN5. N.Y. Debt. & Cred. Law sec. 270 et seq. (McKinney 2001).
FN6. The Trustee has voluntarily dismissed without prejudice Count One of the Complaint, which sought turnover and accounting under section 542 of the Code. See Notice of Voluntary Dismissal, Dkt. No. 207. Additionally, although the Trustee apparently seeks to recover preferences from subsequent transferees in Count Nine of the Complaint, Compl. para. 142 ("Of the Two Year Transfers, multiple transfers in the collective amount of at least approximately $2,047,402.09 and potentially more were made during the 90 days prior to the Filing Date ... and are additionally recoverable under section[ ] 547 ...."), this is likely a scrivener's error, as the elements necessary to establish the avoidability of a preference under section 547 of the Code were removed from the Complaint upon amendment.
The instant adversary proceeding seeks over $245 million in connection with prepetition transfers. At the center of the Complaint's allegations is Cohmad Securities Corporation ("Cohmad"), the New York registered broker-dealer that Madoff founded with his friend and former neighbor Sonny Cohn for the purpose of recruiting investors to BLMIS. Cohmad, a compound of the names "Cohn" and "Madoff," provided a central lifeline to BLMIS by referring investors to Madoff since its inception in the mid–1980s. At the time the Madoff Ponzi scheme collapsed, approximately twenty percent of all active BLMIS accounts were referred by Cohmad. In return, the vast majority of Cohmad's total income was derived from BLMIS. The Trustee seeks to avoid and recover commissions and fees paid by BLMIS to Cohmad and its representatives, as well as fictitious profits that the Moving Defendants withdrew from their BLMIS accounts.
For the reasons set forth below and at oral argument, the Motions to Dismiss are DENIED to the extent set forth herein.
*2 A comprehensive discussion of the facts underlying this SIPA liquidation and Madoff's Ponzi scheme is set forth in this Court's prior decisions. See, e.g., Picard v. Merkin (In re BLMIS), 440 B.R. 243, 249–51 (Bankr.S.D.N.Y.2010); SIPC v. BLMIS (In re BLMIS), 424 B.R. 122, 125–32 (Bankr.S.D.N.Y.2010).
I. Procedural History
On December 11, 2008 (the "Filing Date"),FN7 Madoff was arrested by federal agents and charged with securities fraud in violation of SIPA sections 78j(b) and 78ff, and 17 C.F.R. section 240.10b–5 in the United States District Court for the Southern District of New York (the "District Court"). United States v. Madoff, No. 08–MJ–02735 (S.D.N.Y. filed Dec. 11, 2008). That same day, the Securities and Exchange Commission (the "SEC") filed a civil complaint in the District Court alleging, inter alia, that Madoff and BLMIS were operating a Ponzi scheme through BLMIS's investment advisor activities. S.E.C. v. Madoff, et al., No. 08–CV–10791 (S.D.N.Y. filed Dec. 11, 2008) (the "Civil Action"). Shortly thereafter, the Securities Investor Protection Corporation ("SIPC") filed an application in the Civil Action requesting that the Plaintiff be appointed trustee for the liquidation of the business of BLMIS. On December 15, 2008, the District Court approved SIPC's application, placing BLMIS's customers under the protections of SIPA, and removed the SIPA liquidation proceeding to this Court pursuant to SIPA sections 78eee(b)(3) and (b)(4).
FN7. See SIPA sec. 78 lll (7)(B) (defining the "Filing Date").
One year later, on December 10, 2009, the District Court denied a motion to withdraw the reference with respect to the instant proceeding and consolidate it with an enforcement action commenced by the Securities and Exchange Commission (the "SEC Action") against, in relevant part, Cohmad, Sonny Cohn, and Marcia Cohn (the "SEC Defendants"). See Picard v. Cohmad Sec. Corp., Nos. 09–CIV–07275, et al., 2009 WL 4729927, at *2 (S.D.N.Y. Dec. 10, 2009). The SEC Action asserted, inter alia, violations and aiding and abetting violations of section 10(b) of the Securities and Exchange Act of 1934 and section 17(a) of the Securities Act of 1933 (the "Securities Claims"), and aiding and abetting technical violations of section 15(b)(7) of the Securities and Exchange Act of 1934 and section 206 of the Investment Advisors Act of 1940 (the "Aiding and Abetting Claims"). Although acknowledging "there are concerns which favor withdrawal of the reference," the District Court held that separating claims against the SEC Defendants alone would not reduce discovery or the possibility of inconsistent results, "[n]or would the present litigation in the District Court be simplified by the addition of bankruptcy-law claims to the federal securities law claims." Id. All bankruptcy law claims asserted in the instant Complaint therefore remained before this Court.
On February 2, 2010, the District Court dismissed most of the claims in the SEC Action for failure to state a claim. See SEC v. Cohmad Sec. Corp., No. 09–CIV–5680, 2010 WL 363844, at *6, *7 (S.D .N.Y. Feb. 02, 2010). The Securities Claims were dismissed because the "SEC ... failed to allege facts giving rise to a plausible inference of the [SEC Defendants'] fraudulent intent," a required element for securities fraud violations. Id. at *6. The District Court dismissed the Aiding and Abetting Claims, holding that the "complaint does not allege that the Cohns held themselves out as [BLMIS] registered representatives or hid their involvement from clients they solicited." Id.
*3 Also before the District Court was an action commenced by several investors against Cohmad Representative Delaire, alleging that his fraudulent misstatements and omissions induced them to lose $9.6 million with BLMIS. See Schulman v. Delaire, No. 10–CIV–3639, 2011 WL 672002, at *1 (S.D.N.Y. Feb. 22, 2011). The District Court dismissed the Exchange Act and the Securities Act claims for failure to specify any fraudulent statements or conduct in accordance with Rule 9(b) and dismissed the common law claims for failure to establish that Delaire owed the investors a fiduciary duty. See id. at *2–*4.
On August 16, 2010, the Massachusetts Securities Division issued an order against Cohmad for violations of the Massachusetts Uniform Securities Act (the "Act"). See In re Cohmad Sec. Corp., E–2009–0015, 2010 WL 3431832, at *17 (Mass.Sec.Div. Aug. 16, 2010). Cohmad's specific violations included "engaging in unethical or dishonest conduct or practices in the securities business;" failure to reasonably "supervise agents, representatives or other employees to assure compliance with the Act;" and "making or causing to be made in any proceeding under the Act, any statement which is, at the time and in the light of the circumstances under which it is made[,] false or misleading in any material respect." Id. As a result, the Massachusetts Securities Division revoked Cohmad's Massachusetts securities registration and fined it $200,000. Id.
II. Withdrawals of Fictitious Profits
This Complaint is one of dozens filed by the Trustee seeking the avoidance and recovery of withdrawals of nonexistent profits supposedly earned in investment advisory accounts ("IA Accounts") at BLMIS. Madoff would generate IA Account statements showing securities that either were held or had been traded, as well as the gains and losses in those accounts. None of the purported purchases of securities in the BLMIS customer accounts actually occurred, however, and the reported gains were entirely fictitious ("Fictitious Profits").
The Trustee alleges that all of the Moving Defendants held IA Accounts with BLMIS and seeks to avoid and recover their withdrawals of Fictitious Profits (the "Withdrawals" or "Withdrawals of Fictitious Profits"). These defendants include Cohmad, Sonny Cohn, and Cohmad's Financial Industry Regulatory Authority ("FINRA") registered representatives, as well as certain of their relatives. Specifically, these relatives are Sonny Cohn's wife, who is also the former Vice President and Secretary of Cohmad; Delaire's wife, sister, and father-in-law; Berman's wife; Jalon's wife's estate, of which Jalon is executor; and trusts or joint partnerships established by, or for the benefit of, Cohmad's representatives or these family members. In addition, Withdrawals of Fictitious Profits are sought from the Tenancy Defendants who exchanged transfers to or from the IA Account maintained for the Estate of Elena Jalon. The Complaint states that in excess of $100 million in Fictitious Profits was collectively withdrawn by all named defendants from their respective IA Accounts. Compl. para. 138.
III. Transfers of Commissions
*4 While a significant portion of the fraudulent transfers identified in the Complaint represent Withdrawals of Fictitious Profits, the majority pertain to payments of BLMIS property allegedly exchanged as fees or commissions for the referral of victims to the BLMIS Ponzi scheme (the "Commissions"). Sonny Cohn and Cohmad were paid such Commissions directly by BLMIS ("Initial Transfers of Commissions"). Cohmad subsequently distributed the vast majority of the payments it received from BLMIS to Marcia Cohn, Delaire, Berman, Cyril Jalon, and Richard Spring, who are or were FINRA registered brokers employed by Cohmad (the "Cohmad Representatives"), as well as other Cohmad representatives not moving to dismiss the Complaint. In sum, only Cohmad and Sonny Cohn allegedly received Initial Transfers of Commissions, while the Cohmad Representatives are alleged to be subsequent transferees.
Initial Transfers of Commissions paid to Cohmad were based on the net cash value of the accounts procured by the Cohmad Representatives. To track the true cash value of the accounts referred by the Cohmad Representatives, Cohmad and BLMIS set up a cash database (the "Cohmad Cash Database"). The Cohmad Cash Database generated payment schedules detailing, among other information, the annual Commissions due to each Cohmad Representative. If the account holder withdrew all of the funds in the account, the Cohmad Representative would no longer be entitled to receive Commissions. Indeed, Commissions would be debited where investors withdrew more than the principal they invested. Compl. para. 75. BLMIS paid one twelfth of the total annual Commissions to Cohmad on a monthly basis as an Initial Transfer of Commissions. Cohmad, in turn, paid these amounts to the respective Cohmad Representatives (the "Subsequent Transfers of Commissions"). Compl. para. 59. The Trustee alleges that this payment structure, based on a duel bookkeeping system typical of fraudulent enterprises, indicates Cohmad's and the Cohmad Representatives' actual knowledge of fraud. Compl. para. 75.
A. Initial Transfers of Commissions to Cohmad
Cohmad was formed for the purpose of recruiting investors for Madoff and, thereby, funneling funds into BLMIS. In exchange, BLMIS would transmit money to Cohmad based upon the actual funds that Cohmad channeled to BLMIS. From January 1996 through 2008, BLMIS paid Initial Transfers of Commissions to Cohmad in an amount of approximately $98,448,678.84. Compl. para. 60, Ex. 2.
Just as the name Cohmad could not exist without Cohn and Madoff, Cohmad could not have existed without BLMIS. From a revenue standpoint, BLMIS's payments constituted anywhere from 75.46% to 91.19% of Cohmad's total income per year from 2000–2008. Compl. para. 63. In terms of physical proximity, Cohmad was a subtenant of BLMIS, sharing office space on the 18th Floor at 885 Third Avenue. As shown by the floor plan provided in Figure 11 of the Complaint, Cohmad's offices were interspersed among BLMIS's offices, with no physical indication that Cohmad's employees worked for a company other than BLMIS. Compl. para. 112. In addition, Cohmad's operational infrastructure was essentially provided by BLMIS. Through BLMIS, Cohmad obtained electricity, market data, exchange fees, access to BLMIS's computer network, and the use of BLMIS's administrative staff. Compl. para. 110. More significant assistance came in the form of payments of FICA payroll taxes and the administration of employee benefits, including dental and life insurance plans, for all Cohmad employees. Compl. para. 108. One Defendant, Berman, was given a retirement bonus directly from BLMIS even though he was a Cohmad employee. Compl. para. 109.
*5 The Trustee asserts that a symbiotic relationship was cultivated by Cohmad's principals' and employees' deliberate obfuscation of any perception that BLMIS and Cohmad operated as separate and distinct entities. The Complaint indicates that individuals employed as registered representatives of Cohmad held themselves out as being employed by BLMIS. Compl. paras. 89–124. Various BLMIS Operating Forms listed one of the Cohmad Representatives as the applicable BLMIS-registered representative for the account, thereby indicating that the Cohmad Representatives were registered representatives at BLMIS. Cohmad's co-founder, Sonny Cohn, referred to BLMIS's investment principles and strategies as though they were his own when making representations to existing or potential investors. Compl. para. 104, Ex. 13. At times, the Cohmad Representatives maintained control over customer accounts after referral by withdrawing funds, transferring funds between accounts, and providing copies of account statements. Compl. para. 100.
Cohmad's owners and principals, namely Sonny Cohn and his daughter Marcia Cohn, had unfettered access to Madoff and BLMIS's offices. Marcia Cohn, in particular, had a BLMIS master key, which she used regularly to gain access to the 17th floor, even though her office was located on the 18th floor with the rest of the Cohmad offices. The 17th floor was where the fraudulent activity was taking place, and was "cloaked in mystery." Compl. para. 115. Indeed, it was kept off-limits to all but a select few BLMIS employees and family members. Moreover, the IA business on the 17th floor utilized antiquated computers, maintained handwritten logs of cash transactions before entering them manually, and equipped only six of the approximately twenty-one employees with BLMIS e-mail accounts. Compl. paras. 114, 115. Marcia Cohn's key was used to access the 17th floor multiple times, including on the day of Madoff's arrest. Compl. para. 113, Ex. 15.
B. Initial Transfers of Commissions to Sonny Cohn
In addition to co-founding Cohmad, Sonny Cohn is its Chairman and Chief Executive Officer. Compl. para. 12. The customer accounts he introduced to BLMIS were not reflected on the Cohmad Cash Database, nor was he subject to the same commission structure as the Cohmad Representatives. Rather, after 2002, BLMIS directly compensated Sonny Cohn for luring in new investors and channeling funds into BLMIS. In exchange for these services, BLMIS paid Sonny Cohn Initial Transfers of Commissions totaling approximately $14,601,213.15. Compl. para. 61, Ex. 3.
The Trustee further alleges that Sonny Cohn maintained control over the payment structure between BLMIS and Cohmad. To this end, he is alleged to have monitored the balances of customers' accounts that were referred to BLMIS by a Cohmad Representative, and to have directly received Payment Schedules from BLMIS listing the annual commissions due to each Cohmad Representative. Compl. para. 77, Ex. 4. These allegations, the Trustee asserts, reveal that Sonny Cohn was privy to actual negative account balances at times when the account statements reflected gains of Fictitious Profits to the account holder, and he therefore knew or should have known that Madoff was running a Ponzi scheme. The Trustee supports this conclusion by identifying BLMIS account statements provided to customers by Sonny Cohn, which show their account balances with Fictitious Profits in those accounts. Notably, these statements were printed on Cohmad letterhead. Compl. para. 103, Ex. 12.
C. Subsequent Transfers of Commissions to Cohmad Representatives
*6 The Trustee alleges that the Initial Transfers of Commissions paid to Cohmad correlates with the sums of money that Cohmad subsequently paid to the Cohmad Representatives. Put another way, nearly all the money that Cohmad received from BLMIS was allocated by Cohmad among the Cohmad Representatives based upon the amount of cash their referrals invested with BLMIS. Compl. para. 59. The breakdown of the amounts owed to each Cohmad Representative is detailed in the Payment Schedules contained in Exhibit 4 to the Complaint. Compl. Ex. 4. Each specifies the annual commissions that the Cohmad Representatives earned based upon the amount of money each had under management, with adjustments based on net cash activity that occurred throughout the year. Compl. Ex. 4.
STANDARD OF REVIEW—MOTION TO DISMISS UNDER RULE 12(b)(6)
Rule 12(b)(6) allows a party to move to dismiss a cause of action for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6); Fed. R. Bankr.P. 7012(b). When considering a motion to dismiss under Rule 12(b)(6), a court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56 (2007); EEOC v. Staten Island Sav. Bank, 207 F.3d 144, 148 (2d Cir.2000).
To survive a motion to dismiss, a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2); Fed. R. Bankr.P. 7008. However, a recitation of the elements of the cause of action, supported by mere conclusory statements, is insufficient. Iqbal, 129 S.Ct. at 1949 ("[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions."). Rather, "only a complaint that states a plausible claim for relief survives a motion to dismiss." Id. at 1950. A claim is facially plausible where "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 1949. In determining plausibility, this Court must "draw on its judicial experience and common sense," id. at 1950, to decide whether the factual allegations "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555.
I. The Trustee Has Sufficiently Pled Actual Fraud Pursuant to the Code and the NYDCL
In Counts Two and Four of the Complaint, the Trustee has alleged claims against all of the Moving Defendants to avoid and recover actual fraudulent transfers pursuant to sections 548(a)(1)(A), 544, 550(a) and 551 of the Code and sections 276, 278 and/or 279 of the NYDCL.FN8 This Court finds that the Trustee has adequately alleged (1) claims to avoid Withdrawals of Fictitious Profits from all Moving Defendants; FN9 and (2) claims to avoid Initial Transfers of Commissions from Sonny Cohn and Cohmad.
FN8. Cohmad, Sonny Cohn, Marcia Cohn, Milton Cohn and Marilyn Cohn have not moved to dismiss Count Two of the Complaint for actual fraud under the Code. See Memorandum of Law of Defendants Cohmad Securities Corporation, Maurice J. Cohn, Marcia B. Cohn, Milton S. Cohn and Marilyn Cohn at p. 11. Dkt. No. 46 ("Cohn Mot. to Dismiss").
FN9. As Cohmad and Jalon withdrew all Fictitious Profits prior to six years before the Filing Date, see Compl. Ex 17, the Trustee seeks to avoid and recover their Withdrawals of Fictitious Profits only under the NYDCL through the application of New York's discovery rule. See infra Section IV. Additionally, as the Guenzburger Tenancy's withdrawals occurred prior to the two year look-back period of the Code, the Trustee seeks to avoid and recover its Withdrawals of Fictitious Profits only under the NYDCL.
*7 Actual fraudulent transfer claims brought under either section 548(a)(1)(A) of the Code or section 276 of the NYDCL must meet the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure ("Rule 9(b)"). Am. Tissue, Inc. v. Donaldson, Lufkin & Jenrette Sec. Corp., 351 F.Supp.2d 79, 106–07 (S.D. N. Y.2004); Andrew Velez Const, Inc. v. Consol. Edison Co. of N.Y., Inc. (In re Andrew Velez Const., Inc.), 373 B.R. 262, 269 (Bankr.S.D.N.Y.2007). Namely, a trustee must: (1) "state with particularity the circumstances constituting fraud or mistake," but may plead (2) the "[m]alice, intent, knowledge, and other conditions of a person's mind" generally. Fed.R.Civ.P. 9(b); Fed. R. Bankr.P. 7009.
A. The Trustee Has Identified the Transfers with Particularity Under Rule 9(b)
Under either the Code or the NYDCL, to state an actual fraudulent transfer claim with Rule 9(b) particularity, a party must ordinarily allege: (1) the property that was conveyed; (2) the timing and, if applicable, frequency of the transfer; and (3) the consideration paid for the transfer. See United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc., 216 F.Supp.2d 198, 221 (S.D.N.Y .2002). However, where the actual fraudulent transfer claim is asserted by a bankruptcy trustee, applicable Second Circuit precedent instructs courts to adopt "a more liberal view ... since a trustee is an outsider to the transaction who must plead fraud from second-hand knowledge." Nisselson v. Softbank AM Corp. ( In re MarketXT Holdings Corp.), 361 B.R. 369, 395 (Bankr.S.D.N.Y .2007) (quoting Picard v. Taylor (In re Park South Sec., LLC), 326 B.R. 505, 517–18 (Bankr.S.D.N.Y.2005)) (internal quotations omitted); see also Shields v. Citytrust Bancorp., Inc., 25 F.3d 1124, 1128 (2d Cir.1994). Moreover, in a case such as this one, where "the [T]rustee's lack of personal knowledge is compounded with complicated issues and transactions [that] extend over lengthy periods of time, the trustee's handicap increases," and "even greater latitude" should be afforded. SIPC v. Stratton Oakmont, Inc., 234 B.R. 293, 310 (Bankr.S.D.N.Y.1999).
i. Withdrawals of Fictitious Profits
Here, the essential facts constituting each of the Moving Defendants' Withdrawals of Fictitious Profits are readily identifiable in Exhibits 1 and 17 to the Complaint. Specifically, Exhibit 1 contains an index of the IA Accounts maintained by each of the Moving Defendants, identifying each account by name and account number. Compl. Ex. 1. Each Withdrawal of Fictitious Profits by a Defendant from his or her respective BLMIS IA Account is then identified in Exhibit 17, specifying the date, account number, transferee, transferor, method of transfer and amount transferred. Compl. Ex. 17. To illustrate, on April 10, 2008, the amount of $149,210.46 was withdrawn by Sonny Cohn by check from IA Account number 1C1296.
ii. Initial Transfers of Commissions
*8 Likewise, the Initial Transfers of Commissions paid to Sonny Cohn and Cohmad are identified in Exhibits 2 and 3 to the Complaint, and total over $113 million. Exhibit 2 lists direct payments made by BLMIS to Cohmad for the period of 1996 through 2008, totaling $98,448,678.84. Compl. Ex. 2. Exhibit 3 reflects direct, monthly payments—each in an amount of at least $8,000—from BLMIS to Sonny Cohn between the years 2001 and 2008, totaling approximately $14,601,213.15. Compl. Ex. 3.
Accordingly, the facts contained in the Trustee's exhibits provide this Court with a sufficient basis to conclude that the Trustee has identified Withdrawals of Fictitious Profits and Initial Transfers of Commissions with requisite particularity.
B. The Trustee Has Adequately Alleged Intent Under Rule 9(b)
Given that the Trustee has identified with requisite particularity the transfers he seeks to avoid under section 548(a)(1)(A) and section 276 of the NYDCL, the next question is whether the Trustee has sufficiently pled the element of fraudulent intent pursuant to Rule 9(b). See Fed.R.Civ.P. 9(b); Fed. R. Bankr.P. 7009 ("[M]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally."). Pursuant to section 548(a)(1)(A) of the Code, a trustee must establish that the debtor "made such transfer ... with actual intent to hinder, delay, or defraud." 11 U.S.C. 548(a)(1)(A). Likewise, under section 276 of the NYDCL, a trustee may avoid any "conveyance made ... with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors." NYDCL sec. 276.
Here, the fraudulent intent on the part of the debtor/transferor, as required under both the Code and the NYDCL, is established as a matter of law by virtue of the "Ponzi scheme presumption" as to Withdrawals of Fictitious Profits and Initial Transfers of Commissions. See Gowan v. The Patriot Grp., LLC (In re Dreier LLP) No. 09–15051, 2011 WL 2412581, *33 (Bankr.S.D.N.Y. June 16, 2011) ("Applying the Ponzi scheme presumption, the Complaint here sufficiently pleads the transferor's actual fraudulent intent [under section 276 of the NYDCL]."); McHale v. Boulder Capital LLC (In re The 1031 Tax Grp.), 439 B.R. 47, 72 (Bankr.S.D.N.Y.2010) ("If the Ponzi scheme presumption applies, actual intent for purposes of section 548(a)(1)(A) is established as a matter of law."). Under this presumption, "[a]ctual intent to hinder, delay or defraud may be established as a matter of law in cases in which the [transferor] runs a Ponzi scheme ... because transfers made in the course of a Ponzi operation could have been made for no purpose other than to hinder, delay or defraud creditors." Gredd v. Bear Stearns Sec. Corp. ( In re Manhattan Inv. Fund Ltd.), 359 B.R. 510, 517–18 (Bankr.S.D.N.Y.2007) (" Manhattan Investment I "), aff'd in part and rev'd in part on other grounds, 397 B.R. 1, ("Manhattan Investment II") (S.D.N.Y.2007) ("[T]he Ponzi scheme presumption remains the law of this Circuit."). As this Court has held on previous occasions, the breadth and notoriety of the Madoff Ponzi scheme leave no basis for disputing the application of the Ponzi scheme presumption to the facts of this case, particularly in light of Madoff's criminal admission. See Chais, 445 B.R. at 220; Merkin, 440 B.R. at 255; see also Manhattan Investment II, 397 B.R. at 12 (relying on transferor's criminal guilty plea to establish the existence of a Ponzi scheme). While it is conceivable that "certain transfers may be so unrelated to a Ponzi scheme that the presumption should not apply," the Withdrawals of Fictitious Profits "serve[d] to further [the] Ponzi scheme" and are therefore presumed fraudulent. Manhattan Investment II, 397 B.R. at 11. So too are the Initial Transfers of Commissions "clearly tainted as payments from a Ponzi schemer to an individual to reward them for locating new investors." Id. at 13.
*9 The Moving Defendants posit that in addition to the debtor/transferor's fraudulent intent, the transferee's fraudulent intent must be established to state a claim under section 276 of the NYDCL. Although this Court previously refrained from determining this issue in the context of other actions arising out of the Madoff Ponzi scheme, see Chais, 445 B.R. at 221 ("Unlike under the Code, under the NYDCL, courts differ as to whether the fraudulent intent of both the transferor and the transferee must be pled."); Merkin, 440 B.R. at 257 (same), the analysis since provided by the court in Dreier convincingly demonstrates that "it is the transferor's intent alone, and not the intent of the transferee, that is relevant under NYDCL sec. 276," 2011 WL 2412581, at *32–33. Indeed, the Dreier decision explains how the proposition that both parties' fraudulent intent must be established to state a claim for actual fraud under the NYDCL has been unwittingly transformed into an often cited, and blindly accepted, misstatement of the law. Id. at *30–32. In concurrence with the reasoning of the Dreier court, this Court finds that the statutory text of section 276 and its relationship to the overall framework of the NYDCL support the conclusion that only the fraudulent intent of the debtor/transferor is required to state a prima facie claim to avoid actual fraudulent transfers under the NYDCL. See id.
For instance, section 276 provides that a trustee can avoid "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors...." NYDCL sec. 276. This is markedly different from NYDCL section 276–a, which allows recovery of attorneys' fees "where such conveyance is found to have been made by the debtor and received by the transferee with actual intent." NYDCL sec. 276–a (emphasis added). Section 276 "makes no reference to the actual fraudulent intent of the transferee and the difference between the provisions cannot be ignored." In re Dreier LLP, 2011 WL 2412581, at *32 (internal citations omitted).
Further support for this proposition is gleaned from section 278, which provides an affirmative defense to a bona fide purchaser for value without knowledge of the fraud to retain the transfer. See NYDCL sec. 278(2). As an affirmative defense, section 278 requires that the transferee's intent be considered "at the summary judgment phase or at trial on a full evidentiary record." In re Dreier LLP, 2011 WL 2412581, at *33. Therefore, "[i]f the trustee meets the evidentiary burden of proving a prima facie case of actual fraud ... the burden shifts to the transferee to establish the affirmative defense...." Id. Accordingly, a defendant's good faith "need not be negated by the Trustee in the Complaint." Id. (quoting Stratton Oakmont, Inc., 234 B.R. at 318).
Because the foregoing interpretation "aligns the fraudulent intent pleading requirement under Bankruptcy Code sec. 548(a)(1)(A) and NYDCL sec. 276," the element of fraudulent intent under both statutes is met by virtue of the Ponzi scheme presumption. Id. at *28. Therefore, the Moving Defendants' arguments that they accepted transfers in good faith and in exchange for value will become relevant only as affirmative defenses to be asserted at trial under section 548(c) of the Code and section 278 of the NYDCL. See Mendelsohn v. Jacobowitz ( In re Jacobs), 394 B.R. 646, 659 (Bankr.E.D.N.Y.2008) ("An innocent purchaser must affirmatively show good faith in order to take advantage of [NYDCL] section 278(2) ."); Bayou Superfund LLC v. WAM Long/Short Fund II LP (In re Bayou Grp., LLC), 362 B.R. 624, 631 (Bankr.S.D.N.Y.2007) ("The good faith/value defense provided in Section 548(c) is an affirmative defense, and the burden is on the defendant-transferee to plead and establish facts to prove the defense.").
*10 For aforementioned reasons, the Court finds the Trustee has adequately pled claims under section 548(a)(1)(A) of the Code and section 276 of the NYDCL to avoid and recover Withdrawals of Fictitious Profits and Initial Transfers of Commissions. Accordingly, the Motions to Dismiss Counts Two and Four of the Complaint are denied.FN10
FN10. The portion of Count Four requesting attorneys' fees pursuant to section 276–a of the NYDCL need not be stricken at this time. While the transferee's intent is an element of a claim under section 276–a, unlike under section 276, attorneys' fees will be recoverable provided that the Trustee establishes fraudulent intent on the part of the defendants at trial. See In re Dreier LLP, 2011 WL 2412581, at *33 ("If the Trustee is unable to develop through discovery evidence of actual fraud by [d]efendants, the portion of [the Complaint] requesting attorneys' fees can be dismissed before trial or following trial.").
II. the Trustee has Sufficiently Pled Constructive Fraud Pursuant to the Code and the NYDCL
The Trustee has sufficiently pled Counts Three, Five, Six and Seven of the Complaint pursuant to sections 548(a)(1)(B), 544, 550(a), and 551 of the Code and sections 273–275, 278, and/or 279 of the NYDCL to avoid and recover transfers on the basis that they were constructively fraudulent against (1) all of the Moving Defendants FN11 with respect to Withdrawals of Fictitious Profits; and (2) Sonny Cohn and Cohmad with respect to Initial Transfers of Commissions.
FN11. As noted previously, the Trustee seeks to avoid and recover the Withdrawals of Fictitious Profits from Cohmad and Jalon only under the NYDCL through the application of New York's discovery rule, and from the Guenzburger Tenancy only under the NYDCL. See supra n. 9.
Under both the Code and the NYDCL, courts consistently hold that "claims of constructive fraud do not need to meet the heightened pleading requirements of Fed.R.Civ.P. 9(b)." Bank of Commc'ns v. Ocean Dev. Am., Inc., No. 07–CIV–4628, 2010 WL 768881, at *6 (S .D.N.Y. Mar. 8, 2010); Enron Corp. v. Granite Constr. Co. (In re Enron Corp.), No. 03–93172, 2006 WL 2400369, at *5 (Bankr.S.D.N.Y. May 11, 2006) ("The Court does not see any reason to break with its precedent in applying Rule 8(a) in evaluating the pleadings in a constructive fraudulent conveyance matter herein."); Stratton Oakmont, Inc., 234 B.R. at 319 ("The pleading of constructive fraud [under the NYDCL], as opposed to actual fraud, must only comply with F.R.C.P. 8(a)...."). Rather, the Trustee need only satisfy Rule 8(a) by providing a "short and plain statement of the claim showing that [he] is entitled to relief." Fed.R.Civ.P. 8(a)(2). The purpose of this pleading requirement is to ensure that the defendant receives "fair notice of what the ... claim is and the grounds upon which it rests." Scheidelman v. Henderson (In re Henderson), 423 B.R. 598, 612 (Bankr.N.D.N.Y.2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007)) (internal quotations omitted). Therefore, "the sole consideration should be whether, consistent with the requirements of Rule 8(a), the complaint gives the defendant sufficient notice to prepare an answer, frame discovery and defend against the charges." Nisselson v. Drew Indus., Inc. (In re White Metal Rolling & Stamping Corp.), 222 B.R. 417, 429 (Bankr.S.D. N. Y.1998) (internal citations omitted).FN12
FN12. The Court is not persuaded that the Trustee's claims to avoid Initial Transfers of Commissions against Cohmad and Sonny Cohn must be dismissed for failure to meet a heightened Rule 9(b) standard. See Cohn Mot. to Dismiss at pp. 18–19 ("Because the Trustee's allegations of lack of good faith sound in fraud, they must be pleaded with particularity in accordance with Rule 9(b)'s requirements."). Indeed, the Second Circuit has indicated that Rule 8(a) applies to constructive fraud claims even where the court considers the transferee's knowledge of the fraud and underlying actions. See Sharp Int'l Corp. v. State St. Bank & Trust Co. (In re Sharp Int'l Corp.), 403 F.3d 43, 53–54 (2d Cir.2005) (discussing constructive fraud and raising Rule 9(b) only in subsequent discussions of actual fraud); Silverman v. Actrade Capital, Inc. (In re Actrade Fin. Techs. Ltd.), 337 B.R. 791, 801 (Bankr.S.D.N.Y.2005) ("[I]n [ Sharp ], the Second Circuit considered a motion to dismiss a complaint that asserted claims of constructive and intentional fraudulent conveyance under New York State law. It held that the intentional fraud claims had to be pleaded in compliance with Rule 9(b) but did not imply that the constructive fraud claims had to meet any such requirement."); see also Ecclaire Advisor Ltd. v. Daewoo Eng'g. & Constr. Co., 375 F.Supp.2d 237, 268 (S.D.N.Y.2005) ("[T]his [constructive fraud claim] is not the kind of fraud to which Rule 9(b) applies.").
A. The Complaint Gives the Moving Defendants Requisite Notice to Defend Against the Trustee's Constructive Fraudulent Transfer Claims Under Rule 8(a)
Section 548(a)(1)(B) of the Code requires the Trustee to show, inter alia, that BLMIS did not receive "reasonably equivalent value" for the transfer. 11 U.S.C. sec. 548(a)(1)(B). Under sections 273–275 of NYDCL, the Trustee must show that BLMIS did not receive "fair consideration," which can be established by showing either a lack of "fair equivalent" property—which is essentially reasonably equivalent value under the Code—or a lack of good faith on the part of the transferee. NYDCL sec. 272 (defining "fair consideration"); In re Dreier LLP, 2011 WL 2412581, at *39 ("To defeat a motion to dismiss, the Trustee need only allege a lack of 'fair consideration' by pleading a lack of 'fair equivalent' value or a lack of good faith on the part of the transferee."); Balaber–Strauss v. Sixty–Five Brokers ( In re Churchill Mortg. Inv. Corp.), 256 B.R. 664, 677 (Bankr.S.D.N.Y.2000) ( Churchill I ) (" '[R]easonably equivalent value' in Section 548(a)(1)(b), [and] 'fair consideration' in the [NYDCL] ... have the same fundamental meaning.").
i. Withdrawals of Fictitious Profits
*11 The Trustee has sufficiently alleged that no value was provided in exchange for the Moving Defendants' Withdrawals of Fictitious Profits. Courts have consistently held that transfers received in a Ponzi scheme in excess of an investor's principal are not transferred for reasonably equivalent value. Sender v. Buchanan ( In re Hedged–Inv. Assoc., Inc.), 84 F.3d 1286, 1290 (10th Cir.1996) (holding payments in excess of original investment do not provide any value); Scholes v. Lehmann, 56 F.3d 750, 757 (7th Cir.1995) ( "The paying out of profits to [the defendant] not offset by further investments by him conferred no benefit on the corporations...."); In re Dreier LLP, 2011 WL 2412581, at *37 n. 44 ("The Court's conclusion that the Defendants did not provide 'reasonably equivalent value' for the payments in excess of principal is consistent with those courts that have held that investors in a Ponzi scheme are not entitled to retain the fictitious profits they received."). Thus, when investors invest in a Ponzi scheme, any payments that they receive in excess of their principal investments can be avoided by the Trustee as fraudulent transfers. See Donell v. Kowell, 533 F.3d 762, 770 (9th Cir.2008) ("[T]he general rule is that to the extent innocent investors have received payments in excess of the amounts of principal that they originally invested, those payments are avoidable as fraudulent transfers."); In re Bayou Grp., LLC, 439 B.R. at 338 ("Because Appellants provided no value in exchange for the fictitious profits they received, that portion of their redemption payments is voidable as a constructive fraudulent conveyance."); Churchill I, 256 B.R at 683 (noting the general rule that distributions in excess of principal constitute fraudulent transfers subject to avoidance).
Here, the Trustee has sufficiently pled that the Withdrawals consisted solely of Fictitious Profits, and were therefore not received in exchange for reasonably equivalent value. Compl. para. 138 ("Upon information and belief, Cohmad, the Cohmad Representatives and other Defendants have received in excess of $100,000,000.00 in Fictitious Profits.") (emphasis added). Moreover, the Complaint identifies each Withdrawal of Fictitious Profits so as to provide the Moving Defendants with fair notice of the transfers sought to be avoided. Compl. Ex. 17; see also supra Section I, A, i.
Accordingly, the Trustee has adequately stated a claim for constructive fraudulent transfers under the Code and the NYDCL against all Moving Defendants with regard to Withdrawals of Fictitious Profits.
ii. Initial Transfers of Commissions
In determining whether Cohmad and Sonny Cohn conferred sufficient value in exchange for the Initial Transfers of Commissions, the Court must ultimately examine the totality of the circumstances, including "the arms-length nature of the transaction; and ... the good faith of the transferee." Gonzalez v. Wells Fargo Bank, N.A ( In re Gonzalez), 342 B.R. 165, 173 (Bankr.S.D.N.Y.2006); see also Armstrong v. Collins, Nos. 01–CIV–2437, et al., 2010 WL 1141158, at *29 (S.D.N.Y. Mar. 24, 2010) ("In determining whether reasonably equivalent value has been provided for a transfer, courts delve beyond form to the substance of the transaction.") (internal quotations omitted); Am. Tissue, Inc., 351 F.Supp.2d at 106 (explaining that value "depends on all the circumstances surrounding the transaction") (internal quotations omitted). In this case, where the reasonably equivalent value analysis requires more than a simple math calculation, it is inappropriate at the motion to dismiss stage. See Global Crossing Estate Rep. v. Winnick, No. 04–CIV–2558, 2006 WL 2212776, at *9 (S .D.N.Y. Aug. 03, 2006) ("[T]he question whether 'fair consideration' was received is a factual one, and thus even where on the surface it would appear that such is the case (for example, the [defendants] point out that during the period, [the debtor] managed to raise billions of dollars in capital, precisely what it had asked the [defendants] to accomplish, it would be premature to dismiss these claims."); In re Actrade Fin. Techs. Ltd., 337 B.R. at 804 ("[T]he question of 'reasonably equivalent value' ... is fact intensive, and usually cannot be determined on the pleadings.").
*12 Cohmad and Sonny Cohn nevertheless argue, unpersuasively, that the Trustee's constructive fraudulent transfer claims fail as a matter of law because their services constituted reasonably equivalent value and fair consideration given to BLMIS. In support of this contention, they rely principally upon the case of In re Churchill Mortgage Inv. Corp., where the court found that the brokers provided value by performing their duties in exchange for the commissions received. 256 B.R. at 667, aff'd, Balaber–Strauss v. Lawrence, 264 B.R. 303 (S.D.N.Y. July 9, 2001) ( Churchill II ). FN13 Cohmad and Sonny Cohn ignore that the Churchill court explicitly limited its holding to undisputedly "innocent" brokers:
FN13. In Churchill, the trustee sought to avoid commissions paid to brokers by a debtor that ran a fraudulent scheme. The Trustee's sole argument was that the brokers' services were actually detrimental to the debtor in that each investor they brought in deepened the debtor's insolvency. 256 B.R. at 680. The court rejected this argument and held that "value" is dependent upon the specific transactions at issue between the debtor and transferees, and not on the overall impact of the services on the debtor's financial condition. Finding that the brokers performed their duties as required, the court held that the commissions could not be avoided as fraudulent conveyances. Id. ("[T]he Brokers in these cases were hired and paid to produce mortgages or investors. They produced and thereby gave value....").
It is important here to note what the Trustee does not allege. There is no allegation in the complaints and no claim by the Trustee that the Brokers had any knowledge of the Ponzi scheme. There is no allegation in the complaints and no claim by the Trustee that any of the Brokers' activities were fraudulent, or unlawful, or wrongful in any manner.
256 B.R. at 673–74; see also id. at 674 ("It is also assumed that the Brokers had no knowledge of the Ponzi scheme, and that the Brokers' own activities were not unlawful or wrongful in any respect ."); id. at 680 ("They earned what they were paid fairly and without wrongdoing.") (emphasis added). The issue before the court was narrowly defined as whether "rokers [may] be held liable to repay commissions, which they earned in good faith ... merely because the Debtors' management was independently engaged in a fraudulent enterprise[.]" Id. at 675 (emphasis added). Indeed, in affirming Churchill, the District Court likewise emphasized, and it was undisputed by the parties, that "[t]he Brokers in this case performed innocent services.... The Debtors received 'value' in exchange for the commissions paid to the Brokers for performing in good faith a facially lawful and customary service ...." Churchill II, 264 B.R. at 308 (emphasis added).
Here, unlike in Churchill, the Complaint alleges a lack of innocence on the parts of Sonny Cohn and Cohmad, through its officers and directors.FN14 See In re Bayou Grp., LLC, 362 B.R. at 637 (noting bad faith investors' reliance on Churchill was misplaced because "[i]t was not alleged [in Churchill ] that any of the brokers had any knowledge of the fraud perpetrated by the Churchill entities"). According to the Complaint, the interconnection between Cohmad and BLMIS was so pervasive that they appeared to be arms of the same enterprise—the name "Cohmad" itself embodies the union between Sonny Cohn and Madoff.FN15 Cohmad and BLMIS shared office space wherein Cohmad employees worked side-by-side with BLMIS employees. Marcia Cohn even maintained a BLMIS master key that granted her access to the mysterious 17th floor, the purported nucleus of the fraud. Exhibit 17 illustrates that Marcia Cohn utilized the BLMIS master key on numerous occasions, including on the day of Madoff's arrest. Compl. Ex. 17. Cohmad procured its utility services, market data and exchange fees, computer network, telephone, and other services through BLMIS. To potential investors, Cohmad Representatives held themselves out to be representatives of Madoff and/or BLMIS, and they were often listed on BLMIS account opening forms as the BLMIS representative. Indeed, BLMIS and Cohmad were so intertwined that many of the victims introduced to BLMIS through Cohmad had never heard of Cohmad. Compl. para. 89.
FN14. The Trustee has alleged that Sonny is an owner of Cohmad and serves as the Chairman and Chief Executive Officer, and that Marcia Cohn is an owner of Cohmad and serves as President, Chief Operating Officer, and Chief Compliance Officer. Thus, Cohmad can be charged with any fraudulent knowledge attributable to Sonny and Marcia based on general principles of New York agency law. See, e.g., Bondi v. Bank of Am. ( In re Parmalat), 383 F.Supp.2d 587, 597 (S.D.N.Y.2005) ("The acts performed and knowledge acquired by a corporate officer or agent are imputed to the corporation where the officer or agent was acting within the scope of his or her employment."); SEC v. Ballesteros Franco, 253 F.Supp.2d 720, 729 (S.D.N.Y.2003) ("[A]corporation can act only through the actions of natural persons and that the actions of its agents, acting within the scope of their agency, are attributed to the corporation."). As imputation is based on basic agency principles and not corporate veil piercing, and as none of the causes of action or remedies sought in the Complaint requires that the Moving Defendants be alter egos of their associated corporations, the Court need not address the arguments of Cohmad, Sonny Cohn, and Marcia Cohn that the Trustee has inadequately alleged claims for alter ego and corporate veil piecing.
FN15. Madoff, with the knowledge of Sonny and Marcia Cohn, allegedly utilized Cohmad to funnel money to Sonja Kohn, an individual that was not a Cohmad Representative or otherwise affiliated with Cohmad. See Compl. paras. 76, 120–24, Ex. 4.
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text:
The night before the first TRAX train began shuttling people between downtown Salt Lake City and Sandy was an agonizing one for Utah Transit Authority officials.
"We were worried, just worried," said UTA Assistant General Manager Mike Allegra. "I couldn't sleep because you just didn't know if anybody would use it."
Allegra and UTA general manager John Inglish knew the Salt Lake Valley needed light rail, but numerous protests and fervent opposition to TRAX persisted right up to the Dec. 4, 1999, opening.
That day, though, thousands of people crowded the then-Delta Center station to ride the trains along the 17-mile route -- so many that the inaugural kinks included stranded people, trains stopped in the middle of tracks and hundreds turned away.
It was a hit, Inglish said.
"That was so heartwarming, to see the community embrace this new alternative, this change," Allegra said.
In the decade since, that single north-south line has expanded to include lines to the University of Utah and a downtown inter-modal hub, which links TRAX to the commuter rail, FrontRunner.
Also, more Utahns have hopped aboard the trains: About 500,000 people rode TRAX each month when it first started; monthly ridership now exceeds a million.
Construction is under way to expand the network to 10 times its original reach.
That boom in construction and support for TRAX makes Inglish and Allegra chuckle when they stand at the 1300 South station and remember the day they broke ground at the stop and protesters shouted at them and held signs claiming that "Light rail kills children."
Backbone of mass transit » UTA officials already have a broad vision for what the upcoming decades will hold. Train tracks, either light or commuter rail, will be the backbone of a network that will include streetcars, buses and bus-rapid transit, as well as pedestrian and bike ways across the Wasatch Front, Inglish said. Eventually, he wants 90 percent of the urban population within one mile of public transportation.
"You won't need a car, but you'll still want to have one," Inglish said, adding the best transit solution is a mixture of both.
For the past seven years, Joan Showalter's daily commute has been far simpler. The 56-year-old legal secretary drives to the 10000 South stop in Sandy and rides TRAX to the Gallivan Center station.
The TRAX ride takes about 30 minutes, which is a bit longer than driving and was something Showalter had to get used to. Though the Sandy-to-Salt Lake City highway drive might be 13 minutes most of the time, rush hour is another matter.
"It's a lot less stressful and I feel like I get something done during the day," she said while holding a book in her seat at the front of a full car.
Showalter has seen public transportation avidly used in other areas, but she admits, "I never thought it would work here because people are too attached to their cars ... it's been a pleasant surprise to see how it's worked."
That "love affair" Americans have with their cars is often touted, but Inglish said it's an idea that's overblown. Who, he asked, can really be enamored with sitting in traffic and simmering with road rage?
Trains are convenient, frequent, reliable and speedy. "You have all of the elements that Americans are looking for in a transportation system," Inglish said, adding light rail runs on schedule 98 percent of the time compared with buses, which might top 80 percent.
The 'Phoenix project'» In the late 1970s, light-rail projects started appearing in various North American cities. After traveling and studying those systems, Inglish thought trains could work in Utah, too. Plans began to grow in 1984 for a Salt Lake County north-south line, but hit a bump in 1992 when voters rejected a sales tax hike that would have funded construction on the light-rail corridor, as well as expanding the bus network and Interstate 15 improvements.
"We didn't have any funding, but we still had the same problem," said Allegra, about the growing congestion in the county.
So, UTA continued pushing for light rail.
Though the up-front building costs are far greater with light rail than with buses, since the road is already in place, trains are "the more economically viable option" in the long run, about 30 years, Inglish said.
Once networks have been built, each train car can haul 200 people, and most TRAX trips include links of four cars.
Buses usually seat fewer than 75 people. Per trip, Inglish said, it costs $1.25 to move each person on light rail, compared to between $3 and $4 on a bus.
With too little support from Salt Lakers, UTA turned to the federal government. A couple of months after Salt Lake City was selected in 1995 to host the 2002 Winter Olympics, the Federal Transit Administration agreed to fund 80 percent of the capital costs on the $312 million project.
In 1997 construction began, and the following year, the four-lane Main Street was shut down to construct platforms and tracks for the trains, as well as separate utility work.
"It was harrowing," said Catherine Weller, an owner of Sam Weller's Bookstore on Main Street, who saw other nearby stores close down during that period. The problem was there was poor planning, she said, and Main Street hasn't bounced back since then, though there have been other factors outside of TRAX affecting that.
"No matter how terrible it was," Weller said of construction, "we continue to be supporters of TRAX and mass transit initiatives."
It's a support that has become more widespread, say UTA officials. Voters approved a quarter-cent sales tax increase in 2000 and again in 2007 to accelerate TRAX construction.
"The public is stepping up," Inglish said. "They're saying, 'We want it now.' "
The early skepticism about TRAX has evolved into conservative business groups and local governments clamoring to have rail running through their communities, he said.
"It's now a part of life, people expect it."
But rail doubts have lingered.
"I don't think it's done any great favors to transit down here," said Salt Lake City resident Stephen Pace, who led the anti-rail group Utahns for Responsible Public Spending. He said UTA should have focused instead on buses that have the same right-of-way preference over cars as trains, but are more flexible and require a less massive investment.
Pace rails against the "so-called" elected officials who champion fiscally conservative values but are "just as deep in the federal trough as anybody else" to fund TRAX extensions into their communities.
But that popular support is testament to TRAX's success, say regional planners.
Getting there » There are TRAX extensions under construction that would run through Salt Lake City's west side, West Valley City, Midvale, West Jordan and South Jordan. One is being proposed into Draper.
Also, TRAX trains have linked up to commuter rail. FrontRunner trains travel north to Pleasant View in Weber County, and work has already started on a southern route that would transport people at freeway speeds to Provo.
"The suburbs are trying to serve residents wanting to get access," to mass transit, said planning director Gabe Epperson of the sustainability group Envision Utah. "A lot of communities are changing city plans around existing or future TRAX stops. They've changed their zoning and created transit-oriented development zones around their stops."
Those TOD zones were touted more than a decade ago when TRAX was first proposed.
"It has started a little slower than we'd like," said UTA's Allegra. The plan was to have UTA and cities partner with builders to create developments that mixed housing and businesses and supplied people with quick and close access to public transit.
The Gateway in Salt Lake City is an example of such a project, but most cities are still far from seeing those large-scale projects built.
"The economy is terrible, but it's perfect for the planning" aspect of these developments, said Allegra, noting he has seen smaller housing and condominium buildings dot the TRAX corridor.
In Midvale, the Center Street housing development was meant to be a small-scale version of a TOD, but a bank owns the unfinished project, said Mayor JoAnn Seghini.
But even in that city, a WinCo grocery store already opened at Bingham Junction, a multi-use project on a 203-acre site that was formerly contaminated.
"We pushed very hard to get [the Mid-Jordan TRAX line] so that it would go across what was a former Superfund site," Seghini said, adding that light rail is a boon to economic development.
And more of those TOD projects will be needed as Utah doubles in size by 2040, said planner Epperson.
Keeping populations concentrated will mean far cheaper utility costs, he said, since building longer lines is more expensive. Reducing the amount of developed land has a huge impact in helping conserve water and reducing air pollution, Epperson added.
"That wouldn't be possible without the evolving and expanding rail system," he said.
Don't leave buses behind » But with the additions and expansions made in rail service, Main Street business owner Weller said she hopes bus service isn't sacrificed for car-less or late-night workers or in working-class neighborhoods.
"I think that TRAX has succeeded as a tool for commuters," Weller said, adding she applauds UTA for that, though many of her workers could use more frequent trains later in the day.
Commuters are what UTA should be addressing with light rail, said planner Epperson.
"We don't have a traffic problem as a region," he said, "our problem is with commuting."
Buses aren't as desirable for that kind of travel because they have to compete with road traffic, Epperson said.
Midvale resident Juan Carlos Ranjel uses buses or light-rail as his sole means of getting around. TRAX works well for when the 50 year old works as a supervisor at a downtown restaurant or janitor at the University of Utah, he said -- "It's the best. It's comfortable."
But when he wants to go to other parts of the valley, Ranjel takes buses and complains they run too infrequently and that one trip to Layton took double the time getting back.
Changes are made to bus service, but UTA is legally mandated not to disproportionately affect low-income people through changes, Inglish said.
Though routes have been altered and criticism has followed, those are often improvements that take people time to get used to, he said.
In fact, Inglish added, light rail has helped increase the use of public transportation across UTA.
In the early '90s, about 25 percent of people had used mass transit in the past year, he said of a survey that was repeated more recently since TRAX was available. Those subsequent numbers show around 75 percent of people have used UTA.
Light rail has drastically shifted how many people look at public transportation, Inglish said. "It's hard to believe it's 10 years old." firstname.lastname@example.com
From a controversial beginning and despite rejection of a funding plan, light rail has grown in ridership and expanded in reach. As TRAX celebrates its 10th anniversary Friday, many communities are clamoring for TRAX extensions and FrontRunner is providing the inter-city link up and down the Wasatch Front.