but hopefully i'll do better here the core of the investors claim in this case is they start a common thread that we believe resonates both in pennsylvania common law and the federal securities laws and that thread is the duty to supervise securities professionals the district court dismissed the investor supervisory claims because of its belief that only the person at the center of a ponzi scheme ought to have liability the responsibilities placed on supervisors in state and federal law provide investors with more protection than that we believe there are two points on which we differ with the district court in its decision that pennsylvania supervisory liability does not afford investors a remedy does the defendant have to be an employer and does a defendant's liability for negligent supervision turn on whether he or she knew that employee tortfeasor was committing a fraud posited in her brief that the pennsylvania supreme court has spoken on this issue the legal employer instead the supreme court looked at the issue of who had the ability to control the employee and also had the power to terminate regard artifacts somewhat different i mean and h bishop was also the diocese you're saying he was the alter ego not say he was the all white but actually that's that's what it was the court spent time your honor looking at the situation of defining who was in that case that had factual there was a factual determination who had the ability to terminate the bishop had that power and that could be a board of directors on it in corporation as well who had the power to control that would also be a supervisor as well as a as well as a corporation for instance though we have to do a bit of predicting in this case you're asking us really to extend hutchinson to the facts of this case doesn't it cause us to predict what the fence of a supreme court would find a new these facts this pennsylvania supreme court your honor in looking at negligent supervision has fuzzy parameters to the to the cause of action it's what i'd like to think of as an amalgam it's an amalgam and luddy versus hutchison says this it's amalgam of pennsylvania common law combined with th restatement of agency two thirteen and the restatement second of torts three seventeen and then they say we're going to look to the law of other states as well and they do all three they hearken back in their decision  growth of negligence and you've got to look for the duty of care and if you have a duty of care then they looked at two things negligent hiring and negligent supervision and they looked at for hiring what the employer knew in  dempsey at the time the employee was hired and that was that what judge schiller was looking at but then in dempsey the court also said we're going to look at supervision as well in that case they found the supervision was adequate but it was a separate inqu which director would have liability and we base that on several factors you're our first this case involves investment advisors and the regulators placed the duty of supervision starting at the top of the pyramid because they want to build a culture of compliance and they say the first people liable are the directors even mr mann unless you've got a legal basis for saying that heads of a lot in works federal regulatory regime effect in our brief the question i think the pennsylvania court puts to us is who has the duty and in this case that the duty is is one of reasonable this what has the responsibility and the duty follows the responsibility of the case short or pointed out caremark is like the other cases that you see in other jurisdictions where that they talk about the limits on the responsibilities of directors those are large corporations i think so one sided to get a case there's a scale consideration in smaller corporations life can be different but this case involves private equity and that i think is the distinction here are because in private equity what the fund us is your so your assertion is that the supervisory change with the nature of the enterprise it depends on what tech how the responsibility is allocated within the employee in this case this was a private equity investment and in that situation the fund stuck for directors on the board for instance and those four directors had ability to terminate mr bloom by that equity firms are interested in maintaining control over the investment they make in this case that investment was in a a company whose employees they wanted to control so how did they give that control in an operating agreement that specify specific things that couldn't be done without the directors authority an approval and one of those was you believe determining people like mr bloom so he became want to add a whole concept on her i said well so that so the question is was there if there was no supervision of all there would have been constructive notice and that's position a we take being as we say they were flooded with information this is a case in which information was all around just show said it's speculation to ask the jury to determine what they would have known if they had actually done supervision that's exactly what pat while holmes in other cases required in this case what they would have found is take a look at what was this was a fraud committed out in the open your honor you have a situation in which there were e mails mr bloom it was being represented to be an m p fun it was not an m b authorized fund and it also your honor it was not an authorized fund of the of the company at all you recall the testimony in the case that in the situation if he was running it and the file there is your it's in the breeze it was pushed both ways and you'll see different people testified different ways on that but there was a stairs a second example i want to give and that is in the documents that were on the server there was a document that came up with one of the triggers on the search there was a trigger system where documents popped up in the compliance officer shot a look at them one of those documents was the general ledger of the north hills fund it showed massive amounts of money going to mr bloom i think someone's had nine million someones at fourteen million but were to be a c c say news shows the problem in this was after the fact it showed the fraud it was the actual monies coming in and then being paid out directly to mr bush for his personal moves received that asset allocation you'll see it's in the appendix it's a circle and one of the parts of the circle of the pie chart says credit arbitrage and that was the north hills piece of the  recommendation that was given for instance to mr belmont mr belmont agree to that asset allocation the money then goes over to a brokerage firm and brokerage firm does the actual investing altman played a role  consistent returns that were up remarkable in the state of the economy as it existed at that time and we believe he should have known based on what he was representing that he had a that blue was in a conflict position so he should have asked someone how completely selling this as a fund if he's the manager of the phone and he didn't do that on behalf of the center apple e's and just to reorient because we've talked about a whole host of different groups of the fence the center apple e's and we refer to them a little bit already today with the outside the rector's of and be an investor in the case of center and the holdings and the case of  four act in similar circumstances and with stack the similarly situated defendants as this case is trying to do now let me dig into that a little bit because i think i can put some flesh on the bone to make these points clear first negligent supervision there are two aspects that we talked about briefly today one whether the claim under pennsylvania commonweal can extend to a universe of defendants beyond the energy itself or the employer itself and sue reasonable for see ability now this court  university stated that negligence supervision is a claim against an employer all of the cases talk about this claim being a claim against an employer not against supervisors not against others mr madden talked about budgets and we've obviously had a big fight over  they were apportioned liability in the court below together and one block of of liability and there's no analysis by the pennsylvania supreme court at all as to whether liability can extend beyond just the employer itself there's no there's no statement  really can reach beyond itself well if this court was to read that case and it's unclear to me from that decision if you were to read this case as saying the bishop is someone other than the employer the knight then the answer to that would be yes it's not clear from the opinion analyze this issue it's the f t g case in the pennsylvania fury or court and it's the quandary solutions case in he isn't district of pennsylvania both of those cases identified the key element of negligence supervision being the employer employee relationship and refusing to extend liability beyond that in the case of f t p to a mental health facility in the case of quandary solutions to a parent corporation and so there's no presidential support for what plaintiffs are trying to do and even if you were to give some credence to the cases that they  that was hutchison versus law and two thousand how to heller versus how well home which came in between is a decision of an intermediate court in pennsylvania is the pennsylvania your court but here here you have you have all these representations by blue and others who are part of the company about north hills recommendations for existing clients to invest in north  as mr madden said if somebody had looked on the server for documents that certainly should have raised people's attention that there may have been something wrong here with the amount of money that h is one of no one propensity which was that you actually know you've known that there were prior bad acts of the sim exact character that's being alleged in the case there's none of that here to the extent anyone was looking at documents on and the server clearly wasn't the outside of the rector's there's no well holmes again intermediate court it cited the dempsey and relies on them see in stating that the standard is known propensity but then deviates entirely to come up with a constructive notice standard that no other court thank you i'll be brief i want to just talk refly and just to close the loop on reasonable for civility it's acknowledged here by a balance that the defendants in the case the applebee's on appeal knew nothing of the fraud they talk about things that people could have done could have looked at but they acknowledged that no one knew anything about the fraud and i'll tell you that there was more here on that they could have found there was a compliance program in place the quibble with it but there was a compliance program in place my clients the center of a lease conducted a background check which show that  participation which is the ground reached by the district court at war nor no control which is an argument that was brief below but not reached by this record because it granted summary judgment on the couple for this point now it's been the law in the third circuit for almost four years dating back to the roshi brothers case that in action alone cannot you basis for liability under section twenty eight it can only be a basis for liability under section twenty eight where it's the liberal or intentional and i don't think there's any argument that's even been made in this case whether in the district court or in the third circuit that there was anything done here by my client to center apple used that would be to deliberate or intentional they argue for recklessness standard they talk about a cas back out of the district of connecticut but even that case and supplanting it's my view not a summary judgment decision but as a pleading matter it says that recklessness in the section twenty eight context still requires knowledge it says and i'm quoting from that decision knowledge is the first step of care there just wasn't so they don't they can make out that claim for no lack of a couple for this nation just to conclude very briefly no one disputes in this case that the appellant lost a great deal of money my client's a center apple ease and the investor that they my name as it were touching and i represent the m v investment partners robert machinist benjamin gros cup thomas far christine mon who are all officers and directors of m b and robert barnard this lawsuit represents appellants attempt to recoup losses suffered at say so as the entity why should the wrong doing the end of their of of an officer high ranking officer and that but that the law but i think under the adverse age an exception there was no benefit whatsoever sir in this particular situation well it turns out in the end there was no benefit for sure but that's not the position or posture that it was a totally separate distinct entity as the facts have shown in their undisputed mr belmont who had invested three point five of the four point four million dollars in this entity we see a prospectus he received monthly statement said dismiss all of these showed that it was a totally separate distinct entity let's go after that and then stick with the player got shot and assume for the for the sake of discussion that the that the bloom ran north hills that they were happy to come to envy because coming to be gave them access  corporation and the fraud is imputed to the corporation only when the officer commits the fraud in the course of his employment and for the benefit of this corporation i think it's clear here sir that number one it was clearly not within the course of his employment in fact it had nothing to do with nobody was in any way where of the fact that north hills was being operated without it was a ponzi scheme and second of all it clearly was not for the benefit of the corporation because in fact it brought the demise of the corporation  the particular facts and in this particular situation and i take great again the alleged facts that were brought forth by my brother here today we sincerely believe and have seen are there not facts they haven't been proven at all but in fact there was no knowledge whatsoever the the appellants have not shown that anybody at m b was aware of the existence of northfield that they had a compliance program in effect that nobody was aware of the existence of north wales the only one that was aware that it existed was robert machinist and he thought it was a family fun number one and number two that it had on the no two well i don't know what mr altman do because he was not he had no authority that that's what the plate this alleged record shows that secretaries assistants lot of people in the company well help to mr bush with north you don't was investments your honor in all difference to my brother they take great liberties right in fact they have shown is machinist but then again who ever testified and i can show you it's right in our our papers they said that they don't know mr mission is never mentioned north hills and they don't know if he heard what was what they allege mr bloom said but as far as mr wallace he never met with anybody at m m these office never met with anybody other than machinist allegedly in that one meeting at a hotel number three he never invest any money with and b he never paid any funds to says he didn't and again but we don't believe that's a genuine issue of material fact but at one particular meeting and that's what they say and we refute that but the but they also admit that mr machinists never mention the word north hills he never he was mr bloom allegedly nade any comment there's no evidence that in fact he was on the on the cell phones are they said they they said he was in the room he never said anything and he never talked about north hills and they never talked to mr machinist about north hill and in fact your honor if in fact they felt that m b was responsible as they allege and that the businesses are integrated why is it after mr bloom was arrested for the four four or five weeks that m p was in existence now one appellant ever contacted anybody including mr machinist at m b to inquire with their investments where you know why you are because of the fact that they knew there was nothing it was all they're trying to do is they can't recoup their losses from boom they're trying to go after deep pocket time is run but can i just say a couple of things i'll give you one minute thank you sir in closing i cannot say it better than the pennsylvania superior court stated in cover b cushing capital a case that was very similar factually to the case here by the cover court stated at no time did appellants have direct communication with pushing capital outside the scope of his employment and was in tegan istic to his principle the evidence showed in the trial court found this fact that christian capital had no knowledge of the perpetrators personal machinations which were calculated to line his pockets at the expense of his customers the complaint fails to allege any facts to even suggest that altman had any knowledge of the fraud which was committed soley by bloom through north hills an entity which in which altman had no interest no involvement and no control but he certainly this is this was on a motion to dismiss they say he was at a meeting where north hills was discussed so that's got to be taken as true ok but it does not mean that they are off the hook for their pleading requirements of bo enter under the federal securities laws and detailing what mr altman's misrepresentation was with respect to any investment in north hills that is completely failing and to hold mr altman liable under this court's  court's precedent in this regard it's also important to note that there is no allegation that altman benefited in any way from this fraud or that he had any control over or responsibility for blum who was actually his superior at anything to these the plaintiffs the assertion that the benefit that it goes to plausibility i mean a complaint under the supreme court standard has to be plausible it also goes to the  determination of whether there's any factual allegations that there were c enter in this case and there is none and as recklessness this court has been absolutely clear that reckless this is not negligence it's not even inexcusable negligence it's something far more from that it's an extreme departure from ordinary care and there are no facts alleged here that would that would even begin to suggest that all women had any extreme departure from ordinary ca in fact when you look at the complaint there were no allegations that he even met with or made any representations to four or five appellants in the case or that there was any connection between anything he allegedly said which is limited to one meeting early on with any of their investments in north wales even if it's true that he added meeting in two thousand and six said invest in north hills which if this had gone on we would have this disputed how does that relate to an investment in two thousand and seven or two thousand and eight with somebody who wasn't even at the meeting so there's not only no she entered there's not only no allegations of misrepresentation but there's no causal connection with anything he allegedly said or did and the loss the loss was caused by blooms embezzlement and froth and mr altman is not alleged to have any participation or knowledge of it their claim is that he was somehow reckless because he was he should have known he should have discovered but there's no allegation as to where that duty comes from what he was supposed to do to discover it i mean this was a she critter fraud that was committed by a single individual that was not discovered for years and the fact that they're trying to put this burden on all been a subordinate to bloom at m b makes no sense and is simply not plausible the notion that all  would jeopardize his career to somehow protect bloom's embezzlement from fraud scheme when he had no part in it and did not benefit from it in any way is simply implausible and therefore on that ground alone i guess the the turn their head as long as mr bloom was bringing in money and so even if they didn't get money from north hills itself if north hills was a selling point to bring people and the who they would get money that was a benefit to them and they were  complaint number one and number two there's there's no specification of what altman misrepresented to these people number three there's no indication of that he had any knowledge of what was going on and therefore could not have had the necessary she had her number for he there's no allegation that he had any discussion or involvement with for the five appellants at all with regard to any investment in north hills so how he was he was acting with this with this purported benefit is implausible i see my time's up thank you very much and eight any other questions thank you mr gala if we look at what the court drew out in reaching its decision as to whether it intended for supervisors to be liable the court pointed out it was not only drawing from the restatements in pennsylvania common law but from a lot of other jurisdictions and the cases it pointed to in the other jurisdictions were were interesting one was from cows a case in washington the person liable in that case is a supervisor the head of a board of deacons that's not an alter ego of an archdiocese you're our original boy scout council closer but not an employer school officials as well as the school district that one's not an alter ego its supervisors they're looking at in those cases you're ours who's who ends of being li see their defendants or the defendants on the negligent supervision claims they are gone and so you're saying because the worse the arguments made from the sides there's not a case out there other than hutchinson which can be explained away where hiring and for that part they expected and for it surely said you've got to know that something that he was doing something wrong for us to hold you responsible for negligent hiring but when they started looking at this negligent supervision they did not talk about forsee ability in that context they merely talked about whether the hour every now and then that the employer was spending supervising was sufficient and they found in that case for the purposes of that case it was we wouldn't  e to include comp for civility in this room and how could you how could you have how could you make an assertion that somebody was that was that is well below a standard of expected care with out having some virtually no supervision certainly not from the top there was the directors never met with a compliance officer the subject of compliance never once came up in the minutes of any director speaks it was not a subject of system of supervision would might create problems like the one that occurred here that's exactly correct i also want to talk about controlling person for just a moment we talked in an hour brief about rush a versus roads as well this court recognized in that case a such a subsidiary concept that no one has talked about yet which is situations in which there is a strict requirement of supervision and in that case they were talking about broker dealers this court cited favorably to f c c versus first securities in the seventh circuit there which said that the failure of controlling persons to maintain diligently enforce a proper system of internal supervision constitutes participation in the misconduct and a few years later in the eastern district of pennsylvania judge lord gave the requirement the same meaning in walsh verses which are in sharing this aspect of situations than just broker dealers it for which a duty of careful supervision exists and that it is especially after require that work communications are being made to investors thank you rogers good thank you very much mr and any any question