the next case which is goldman versus than good morning or honors may please the court my name is joe the lardy and i represent the goldman appellants before i address the specific errors made by the courts below i think it's important to set out a few propositions and principles that  undisputed in this case it is undisputed that a section twenty a claim necessarily is an independent claim that cannot belong to the trustee it cannot be derivative of the trustees claim that asserts an independent duty and that is a claim for damages that cannot be sought for the trustee thus the sole question below and the sole question on appeal here is is the complaint the goldman complaint taking the allegations is district court said i think that this is not a matter of deciding a twelve b six motion that is correct every court has addressed these complaints and even other complaints this is yes we are not to engage in a motion a claim would survive the twenty of the sick twelve b six motion wouldn't that necessitate a conclusion in your favor i think it would your honor so some form of the now as this would be would be appropriate now suppose it snows you did the twelve the six analysis and concluded that your claim does not your charge is not stated claim well i think that what happens then well i think that that's not the correct analysis however because every court including j p morgan this court j p morgan said we're not going in that type of analysis what well but but as we just established it's a little odd to say we're just not going to engage in that because it would seem to short circuit the entire matter if the court looked and said there's a perfectly fine twenty eight climb it should go forward to discovery so if that's true wouldn't that be a  controlling consideration again i don't think so because the test is i thought you told me that it was a minute ago but maybe you're joining your mind oh i think that if hypothetically the court were to go through that analysis i'm saying that analysis isn't the proper test nor is one that's been engaged in by you so if the complaint would not survive twelve these six motion what you're suggesting is there has to be more it has to be not just an insufficient twenty a claim it has to be a frivolous twenty eight claim no in this case oh wait if it was a frivolous twenty are you saying that by calling something a twenty a claim you get to escape the injunction even if the contention that this was a twenty a violation is utterly frivolous you can't be saying or maybe you can't know i am not saying that at all ok what i'm saying is that in order to make the determination about whether this claim this twenty a claim is subject to the injunction yes you must look at the allegations but not to see whether the allegations are true or not true that's not true or not true that's never the standard even twelve the six motion the question is as a matter of law it seems to me that we've already established that if it would survive a motion to dismiss then it can't possibly be the case that it subject to the injunction maybe they'll disagree but that's that's your position it makes sense to me and also that if it's an utterly frivolous twenty a claim then it probably is subject to the injunction again i think if the claim was utterly florida listen that hypothetical that may color the court's analysis in determining whether the claim as stated is something other than i would say though in this case as we br survives twelve b six or not but it would not be subject to the injunction because it is a call or a ball claim of securities law violation securities fraud case categorize  that the claim that you're making is one that applies universally to all the made up investors let alone to any other made up predator like the people who supplied electricity to the office or something like that  present position and that is the fact in this case the second circuit has addressed this issue and has articulated a test and the test articulated in the first fox one which was the adoption essentially of judge fairfield a case decided by the circuit around the same time the court asked the question does the claim as alleged depend on the fraudulent conveyance claim is it necessarily contingent on there being a fraud conveyance that's the language of this court now is the complete different though from the earlier two district court cases going one goldman to the florida year yes so the original complaint alleged this this complaint is remarkably in four different it goes back decades in time beginning in one thousand nine hundred two and alleges loans secret illegal loans that propped up the ponzi scheme it alleges that picower participated in the fraud itself by being a counter party to fraudulent options transaction that was the very strategy that made off with selling give me your money i will put it in s and p securities and i'm going to hedge with options so by agreeing to be a counter party to those fraudulent transactions that conduct resulted in direct misrepresentations and omissions giving rise to the securities fraud and the control person claims so that is how they are different as to be controlled person good morning your honors and may please the court my name is deborah renner and i represent the trustee irving picard your honour's this case concerns a straightforward application of an injunction that was approved by this in two thousand and fourteen as you know most of the allegations in the goldman three complaint have been reviewed by either this court or nowheres lower courts in one of the previous iterations of the goldman complaints or in one of the complaints brought by a compete inside of class action plaintiffs the fox martial plaintiffs in fox marshall one two and three the day invented some new allegations so let's focus on what's different about this complaint before i before i get to the new allegations i do want to talk about what you talked about you mentioned about the  there was an injunction hearing in this case and at the hearing the judge asked for evidence regarding the loans one of the new allegations is the are the loans the so called loans the judge noted in the  the argument and question both sides about these loans because the loans articulated in different ways both in the trustees complaint versus goldman three and even within goldman three they appear to be counted the court make a finding th were no loans yes the court made a finding that in actuality the loans were nothing more it made a factual finding that in fact loans were nothing more than ours own account activity and in fact one of those longs actually make a the suppose that picco or knowing that this is a ponzi scheme but knowing that he has profited from it and will continue to profit from it it's money in his own account which he knows that whether he calls it a loan or he calls it an investment or anything else made if it's going to use it to pay off whoever's the at the door at that moment and then later when the ponzi scheme is back going to go he's going to be able to pull that money back out why does it make a difference whether it's characterized as a loan if he's giving made money with the intention of bolstering the ponds what he knows is a ponzi scheme now you know i'm not saying that's enough somehow i'm just saying why would that be different with respect to the analysis of is he engaged in the securities fraud conspiracy or is he just somebody who's the beneficiary of fraudulent conveyance well let me answer that in several ways the first is that one of those purported loans the hundred twenty five million dollar loan form part of the settlement that the trustee in the department of justice had with the picower parties so that purported low has been taken into account as account activity and settled the other thing here is that if we're really talking about pick our zone account activity this really falls within the realm of this court's decision and fox marshall one where they were conspiracy allegations which are very akin to control person allegations and the court held that a derivative claim is a claim where a third party acts toward the debtor here alone would be action toward a debtor right and that case all the other harms that flow to the creditors are secondary harms because the action that mr picower would have taken had he indeed provided these loans and your hypothetical would have pushed the debtor further into insolvency with prolonging the ponzi scheme that's a classic derivative claim under the jurisprudence of this court so let me also talk a little bit about the counterparty claim now the court below found that claim to be conclusory and i know that mr pic hours counsel mr stein is going to address all of the issues in how the the two sets of allegations alone allegations the counterparty allegations aren't supported by the criminal testimony in fact there is even it an admission in the hearing before judge bernstein that actually the loan allegations are based on the prosecutor questions and not on the witnesses answers but mr stein is going to address all of the issues this to why this is not a bona fide control person claim and these two suit new sets of allegations don't matter and again i'm trying to figure out how this could be distinguishable in a number of ways from a twelve b six analysis one that's implicit in something that you said is that because there is an injunction outstanding and the bankruptcy court is trying to enforce that injunction the bankruptcy court could go beyond a twelve b six analysis and do a more rigorous scrutiny of the complaint to determine what exactly whether it's in good faith whether there is evidence that backs up the allegations what what would be the standard in determining that this is not a bona fide secure securities claim a bona fide twenty a claim well if i thought i heard your question correctly you're asking me whether or not you the complaint would survive a motion to dismiss in florida it still could be within the injunction if the bankruptcy court finds that there supported by evidence well i guess what you're asking doesn't make sense for the injunction to come before the motion to dismiss now and it does because the court can give it greater scrutiny you know not that that was required here given the fact that these allegations didn't have don't have any basis in the facts that purport to support them let me move on if i may to the j p morgan case because there's a lot made of it in the brief  morgan case is a case that deals with the trustee standing to bring common law claims it's very different from an injunction context particularly here when the injunction says on its face that it extends beyond claims that the trustee could have brought it extends to claims that derive from those claims so even on the face of the injunction it's clear that the trustee doesn't need to have standing to enjoin claims that he himself could not bring and that again is consistent with this court's holding in fox marshall one which was the conspiracy case and again and again no matter how much they try to shoehorn themselves into the facts of the j p morgan case as this court held in that case there were independent actions particular were directed at a customers and that's what made that case a case where the trustee wouldn't have standing to bring those claims he didn't own those common law claims according to that this court that's not the case here there's not one iota of an statements to the world right that might may make him i guess did make him liable for securities fraud they're not made to one person they may be they may be subsets of statements that he made face to face to different people but basically he's making statements to the world and people who rely on that or who can rely on a fraud on the market theory or something are able to to bring those claims they're not  derivative of the made up of state of all people right and i guess what i'm saying is if this is a legitimate securities fraud claim if there were some basis for saying that mr is  guilty of acts that would make him liable for securities fraud in what sense is that a derivative claim i think that's a difficult question to answer and fortunately it's one that you don't need to answer on the facts of this case because i think what you're pointing to is kind of two different bodies of case law that almost collide in that scenario right because you have this definition of a derivative claim where in order to be independent there needs to be particular laws conduct toward a plaintiff and meanwhile you have this argument that there is no if there is the legal duty automatically a control person claim would be would be an independent claim that case hasn't been decided yet and what i'm saying is you don't need to decide that here if he's if you were to say issue a press release saying i've investigated books and their gold it's amazing what he can do knowing that those are totally false statements when there's some sort of action like that like a misrepresentation made by a party be a insurance company is a mental three or an accountant like in the hershey arthur andersen case then that's the easy case in this court is held those claims are at the label they can't just take some allegations that relate to cower and slap the control person label on it has to be a bona fide control person claim and at i would say colorable is another way of putting it i would say there has to be some logical connection at a minimum between the facts that they allege and a conclusion that mr picower was a was a control person there and there has to be a you can't be a non sequitur there has to at least be a sequitur and there isn't any here and i think the the easiest way  of showing that they haven't played a bonafide or colorable control person claim is to look at their argument as to why they have and we heard again this morning from mr cole already and it's on page twenty five of their brief quote control requires actual knowledge of the fraud and some facilitation by the defendant that's the same argument they made below the judge bernstein that's just not an accurate statement of the law we're not in the universe of control person liability maybe we're in the land of the culpable participation element of control person liability in this circuit that's not even an element in the eleventh circuit which is a political here the eleventh circuit test is whether the defendant had the power to control the general business affairs of the primary violator and had the requisite power to control the specific policy or misrepresentations at issue at the government site one case for the proposition that i just stated that knowingly participating in the primary violation is sufficient to render someone a control person that's s e c versus jackson a district court decision from the fifth circuit first of all it doesn't say that knowledge and control is sufficient it's a case where the defendant was the c f o and then the c e o of the company listed on made of books in the past yes parties that they knew nothing about they presumably didn't didn't reach an agreement and made us plan obviously was to show these phony records to the auditors and deceive them that way you know i think he did trust and again it's not just mr picower it's several large investors that if i got a call they would just hang up but but but even if you accept all these allegations as true and made off asked mr picower and others to do this how does that give mr pic our control over the general business affairs of below my ass or that specific misrepresentations at issue let alone over the whole scheme this is something that happened at the very tail end in two thousand and eight it simply does it's glaringly obvious from the plaintiff's own allegations that the person controlling all this activity was bernie made off it wasn't jeffrey picower or the other or the other investors the theory seems to be behind their control theory that if somebody does something that is important or instrumental to the fraudulent scheme that gives rise to control person liability that's just not that's just not the case i mean we dispute that that happened factually but if you look at it and we cited in our brief judge totals decision in a controlled person claim in the made off case brought against j p morgan perhaps more relevant here a similar decision by the middle district of florida within the eleventh circuit also dealing with the control person claim against j p morgan they were tossed notwithstanding that the the allegation was the same that the scheme to defraud wouldn't have succeeded but for j p morgan involvement or that j p morgan was indispensable to made off fraudulent scheme the courts in both those cases said how does that play control it doesn't and i'm dismissing the case because it doesn't plea control the plaintiffs in their reply brief pretended that  the he dismissed the case because it didn't meet the culpable participation requirement and it's true that he found in the alternative that the complaint had an alleged culpable participation but he found first and foremost that this didn't was not a colorful allegation of control which is clearly correct under the case law with regard to the to the to the loans  again in the first place the what plaintiffs are calling loans were actually deposits made to mr pic hours account at the m i a s that the claim that they have made that these you know to suppose that loans didn't go through the picker was accounts have nothing to do with the pickles or accounts is contradicted by the very trial testimony on which they rely mr di pascali said that the seventy six million dollars and securities involved in the two thousand and two transaction were received into picking ours account that's at eleven eighty two one eleven ninety one of the joint appendix before i'm puzzled what that means there are no accounts that's the whole nature of the scheme money gets whatever the whatever mr picower thought they were when they in fact were was done with the money was apparently that it was given to some other investor who wanted to cash in at that moment and needed some extra funds so who's  account it went and doesn't seem to make much difference i agree with you it doesn't make make a difference i think it the fact that if you're saying that that suggests that this is not alone there was corded in his account it was  well within the case of the loans the seventy six million dollars in securities actually went into his account and one hundred twenty five million dollars actually was wired into his account in april of  contained copies of the account statements showing that those transactions in fact went through accounts from mr picker and it just it highlights your honor i think the fact that this is all about the stuff that was the subject of permanent injunction but i also agree with you that even if it didn't go through his accounts what difference does it make it doesn't make any difference because it still doesn't show that picower had control over the general business affairs of beyond my was coming in and mr made off in the past had sort of made them go away by saying we have these option trades the counter parties are these big institutional banks and that was sort of accepted at face value in two thousand and eight when even large institutional banks were not doing so well he was concerned that wouldn't be accepted at face value when he came up with sultanate of a plan to create a document and show it to these auditors that show that the parties on the other side of these phony utterly phony option trades were large investors in beyond us including mr pickard but it wasn't it wasn't for public consumption and i don't believe that the record shows that or there's an al a an allegation that there was an agreement in which mr picower if he got a call from his auditor would or from a regulator would would say that but that's the testimony the testimony in which that is based comes from frank di pascali mr made us right hand man throughout this fraud and he doesn't say that mr madoff ever told him he spoke to pick our or the other investors the record that he never met mr picower he never spoke to mr picower in his life that's all enjoined appendix twelve forty five twelve fifty five again this is not a colorable control person claim there could not have been a control person some shadow puppet over made off who had no contact with frank thank you are you have a couple minutes your honor but before i address those arguments this court has held for twenty years that whenever a defendant is alleged to have participated in a fraud which is well played in our complaint that claim always belongs the investors and it never belongs to the trustee even if there are fraudulent conveyances by the same defendant to hold otherwise in this case would undo j p morgan it is this case is the law and control person which is stated in a case which we started is that control can be knowledge of the fraud and inaction that prevents discovery of the fraud or participation of fraud that were true then an awful lot of lawyers and accountants would be back on the hook that the supreme court took them off with the stone ridge case right if people if it's enough to be a control person that you aid and abet and don't blow the whistle how does that that that's that doesn't compute to me and then the next step is did you have control control or the ability to control ok that's so that's not that's what they've been complaining about and the case law is that the ability making loans case can be control and that's exactly the made off was not a typical lender who documented all of his loans he was like mecca someone involved in the ponzi scheme that it up through the loans all of this discussion about whether there is a bonafide twenty eight claim again what they are asking this court to do is way allegations make inferences from testimony and they're asking you to do two things that are is an injunction problem and every year in involved we can actually probe a little deeper or at least the bankruptcy court could probe a little deeper into what are the actual bases for these allegations and therefore it might be open to us as it might not be in a twelve the do either of those if i can conclude with two point to that question then make one more point about the control allegations in fairfield greenwich that case came up in the context of injunctions the trustee wanted to enjoin settlements and the court determined the lot but both the district courts judge rake off and the name escapes me of the other judge no one compared or weighed allegations tested whether it was an actual claim all the court looked at even in the context of an injunction was is this something other than a fraudulent conveyance which i think this court has repeatedly said both and fox and in fairfield and even more recently intro knox where it took a look at control over the books and records now law that may is is not as relevant to the question of whether we've had something other than a fraudulent conveyance the notion that he can reach in and alter the books and records and take money out  and any way that some other investor could not just by asking to withdraw his funds yes although it's not alleged in the complaint we know from the trustees complaint that he could call up someone at this and say i need this return this time i need twenty percent and they would give it to him so that shows day to day control as much as anything else with the loans with the ability to say i'm not going to loan the