December 2014 Newsletter


•  Scott+Scott Achieves Successful Resolution for Consortium of Banks After Trial

 Scott+Scott Appointed Lead Counsel inDuke Energy Derivative Litigation

•  Senate Subcommittee Report Details Manipulation in Commodities Markets

•  Six Banks to Pay Combined $4.25 Billion in Penalties for FX Manipulation

•  Conferences and Educational Seminars


Scott+Scott Achieves Successful Resolution for Consortium of Banks After Trial

After weeks of trial and years of litigation, Scott+Scott’s representation of a consortium of regional banks led to a successful resolution of the lawsuit in Bankers’ Bank Northeast v. Ayer, et al., No. 12-cv-127 (D. Me.).  Scott+Scott partners Judith Scolnick and Thomas Laughlin represented the banks in a multi-week trial which took place between April and July 2014. 

The lawsuit, originally filed in the District of Connecticut in February 2011, named eleven defendants.  At the time of trial, the lone remaining defendant in the action was Berry, Dunn, McNeil & Parker (“Berry Dunn”), an accounting and auditing firm headquartered in Maine.

In September 2008, the group of ten plaintiff-banks scattered throughout New England extended a loan of $18 million to the Savings Bank of Maine (“SBM”).  In extending this loan to SBM, the plaintiff-banks relied upon SBM’s most recent audited financial statements, which were reviewed and prepared by Berry Dunn.  The plaintiff-banks alleged that these audited financial statements were false and dramatically overstated SBM’s financial position and results of operations.  Specifically, the plaintiff-banks alleged that critical aspects of SBM’s financial performance, in its loan loss provision and loan loss allowance, were false and inadequate.  Indeed, after the loan was consummated, the former United States Office of Thrift Supervision severely criticized SBM’s banking practices, and ultimately issued a cease and desist order. 

By early 2010, it became clear that SBM faced insolvency.  As part of a restructuring plan, the principal in the loan from the plaintiff-banks was halved to just $9 million in May 2010.  As a result, the plaintiff-banks lost $9 million in principal, as well as interest that they were due to earn on the loan.  The plaintiff-banks alleged that Berry Dunn, in its capacity as the auditor that reviewed, approved, and published the SBM financial statements upon which the plaintiff-banks relied, was liable for negligent misrepresentation and professional malpractice. 

In early 2014, the plaintiff-banks reached a confidential settlement with the other ten defendants in the case, all of whom were current or former directors of SBM.  These defendants were dismissed from the case just a few months before trial commenced.

After months of pretrial discovery and a myriad of pretrial motions filed by both parties, a bench trial commenced on April 17, 2014 before the Honorable George Z. Singal in Portland, Maine.  Over thirteen days of trial spread across three months, the parties presented the testimony of over fifteen witnesses, who were also cross-examined at length.  Trial concluded on July 9, 2014.  At the conclusion of the trial, Judge Singal ordered the parties to prepare proposed findings of fact and conclusions of law.

Prior to Judge Singal issuing a post-trial decision, the parties were able to successfully resolve the matter.

Table of Contents


Scott+Scott Appointed Lead Counsel in Duke Energy Derivative Litigation

On October 31, 2014, Vice Chancellor Noble of the Delaware Court of Chancery appointed a group of investors as co-lead plaintiffs and Scott+Scott, Attorneys at Law, LLP, as co-lead counsel over the consolidated action, In re Duke Energy Corporation Coal Ash Derivative Litigation, C.A. No. 9682-VCN.  The co-lead plaintiffs allege that the Board of Directors of Duke Energy Corporation (“Duke”) breached their fiduciary duties and exposed Duke to billions of dollars in liability as a result of Duke’s management of its coal ash production.  This includes the major spill into the Dan River in North Carolina on February 2, 2014. 

Based in North Carolina, Duke relies upon coal-fired power plants to generate a large portion of the electricity it provides to its customers.  The industrial waste byproducts from the generation of energy from coal are called “Coal Combustion Residuals” or CCRs.  The largest component of CCRs by volume is coal ash.  Coal ash contains many toxic substances and must be disposed of carefully to prevent contamination of water sources.  The disposal of coal ash in unlined ash ponds, while the cheapest method, poses the most significant risk to the environment and public health.  Of the three major energy suppliers in North and South Carolina, Duke was, until very recently, the lone holdout in its refusal to remove any of its coal ash from unlined ponds and store it in lined landfills or recycle it.

On February 2, 2014, a corrugated metal stormwater pipe, installed sometime in the mid-1950s, ruptured underneath a coal ash containment pond at Duke’s retired Dan River Steam Station in Eden, North Carolina.  Approximately 39,000 tons of coal ash and 27 million gallons of contaminated water entered the Dan River before the spill was contained, making it the third-worst spill of coal ash in American history.  Subsequently, Duke engaged in a massive illegal scheme that endangered the lives and health of North Carolina citizens by exposing them to carcinogens and the serious pollution of North Carolina’s environment.  Specifically, Duke Board members were aware for years that toxic chemicals from coal ash had the potential to seep into the ground from their storage sites in unlined retention ponds.  Yet, the Duke Board failed to take sufficient action to bring the Company into compliance with environmental regulations, and allowed Duke to continue to dump millions of gallons of coal ash byproduct into local rivers even after the Dan River spill.

Scott+Scott represents two of Duke’s shareholders in this litigation, having filed one lawsuit in July 2014 and the second, on behalf of an institutional investor, in September 2014.  Prior to filing, Scott+Scott conducted a books and records investigation on behalf of its clients, obtaining documents and materials from Duke’s Board under Section 220 of Delaware’s General Corporation Law, the state where Duke is incorporated.  Some of the materials that were obtained were then incorporated into the lawsuits.

Table of Contents


Senate Subcommittee Report Details Manipulation in Commodities Markets

On November 18, 2014, the United States Senate’s Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Relations (the “PSI”) released a report entitled, “Wall Street Bank Involvement with Physical Commodities” (the “Report”), which detailed the influence that Wall Street banks have over commodities like oil, electricity, aluminum, and coal.  The Report followed a two-year investigation and was released ahead of two days of congressional committee hearings in Washington, D.C.

The PSI found that, over the last ten years, large banks and bank holding companies have become major players in the markets for physical commodities.  Furthermore, the PSI concluded that this new development has created the risk for abusive conduct, unfair trading, market manipulation, credit distortions, unfair business practices, and conflicts of interest.  In particular, the Report contained case studies of three large banks’ involvement in different commodities markets: (1) Goldman Sachs & Co.’s involvement in the markets for uranium, coal, and aluminum; (2) Morgan Stanley’s involvement in the markets for natural gas, crude oil, and jet fuel; and (3) JP Morgan Chase & Co.’s involvement in the markets for electricity and copper. 

The Report ultimately found that, by exercising control over vast physical commodities, the banks had access to valuable non-public information that could have provided advantages in their more traditional trading activities.  Goldman Sachs, for instance, was found to have engaged in manipulative practices in the aluminum market by engaging in sham transactions and transporting the metal around to different warehouses under its control.  The Report described these transactions as “merry-go-round” deals that had the effect of increasing aluminum prices as well as the length of the time that aluminum purchasers had to wait to obtain the metal.  The Report noted that Goldman Sachs engaged in these deals with Deutsche Bank, Red Kite, and Glencore.   

Scott+Scott has been on the forefront of investigating and prosecuting actions against entities manipulating commodities markets, and is currently prosecuting actions alleging manipulation in the market for aluminum, representing major commercial purchasers of aluminum in In re Aluminum Warehousing Litigation, Case No. 1:13-md-2481.  If you would like more information regarding actions involving the manipulation of commodities markets, please contact Scott+Scott partner Walter W. Noss at 619-233-4565 or

Table of Contents


Six Banks to Pay Combined $4.25 Billion in Penalties for FX Manipulation

On November 11, 2014, four financial regulators—the United Kingdom Financial Conduct Authority (“FCA”), the Commodity Futures Trading Commission (“CFTC”), the Office of the Comptroller of the Currency (“OCC”), and the Swiss Financial Market Supervisory Authority (“FINMA”)—announced that six banks will pay a combined $4.25 billion in penalties.  The banks are JPMorgan, Citigroup, UBS, Royal Bank of Scotland, HSBC, and Bank of America. 

The FCA said that it had reached a settlement worth more than $1.7 billion with five of the banks.  In the United States, the CFTC imposed a $1.4 billion penalty against the same five banks, while the OCC fined three banks a combined $950 million for what it said were “unsafe and unsound practices” in foreign exchange (“FX”) trading.  In Switzerland, regulators penalized UBS about $138 million.

The initial investigations focused on whether traders colluded to manipulate the WM/Reuters and other FX benchmark rates.  The regulators fined these six banks not only for anticompetitive conduct, but also for failing to implement sufficient internal controls to stop traders from breaching confidentiality and for conflicts of interest.  These failings, the FCA said, “allowed traders to behave unacceptably.”

Banks conspired within chat groups dubbed “the 3 musketeers,” “The A-team,” “the players,” and “1 team, 1 dream.”  Regulators released transcripts that show traders sharing customer orders and private information about clients, plus attempting to rig FX currency benchmarks.  Customers include pension funds, hedge funds, and large asset management firms.

Banks and individuals could face further penalties and litigation following the 13-month investigation.  The United States Department of Justice, the Federal Reserve, and the United Kingdom Serious Fraud Office are still leading criminal probes into the $5.3 trillion-a-day market. More than 30 traders have been fired, suspended, or placed on leave, or have resigned since the probes began last year.

Scott+Scott is lead counsel for a proposed nationwide class of victims, alleging that the banks conspired to manipulate FX benchmark rates.  The case is In re Foreign Exchange Benchmark Rates Antitrust Litigation, Case No. 13-cv-07789 (LGS) (S.D.N.Y).  

Table of Contents


December Events


Conferences and Educational Seminars


+December 3-5, 2014


National Association of State Treasurers ( NAST) Issues Conference on Public Funds Management

Conrad Hotel

New York, New York

The 2014 NAST Issues Conference addresses public funds management. States face unprecedented fiscal challenges today: lean budgets, reduced federal assistance, and turbulent financial markets.  The NAST Issues Conference on Public Funds Management is the premiere meeting for public and private sector officials to discuss strategies that address these important issues.  National experts in the financial services industry and government will speak on pension fund investing, debt management, and new regulatory complexities.  This conference will provide public finance officials with the tools they need to successfully manage state funds while navigating through a recovering economy.

+December 7-9, 2014


Global Indexing & ETFs (Super Bowl of Indexing) Conference 

JW Marriott Camelback Inn

Scottsdale, AZ


Information Management Network (IMN) will produce its 19th annual investment management conference: the Global Indexing and ETFs conference formerly known as the Super Bowl of Indexing.  This year’s focus will be combining education filled with cutting edge content as presented by senior executive partners with networking opportunities.  The conference is well known for its keynote speakers, who have included Henry Kissinger, Madeleine Albright, Bill Bradley, Harvey Pitt, Robert Shiller, Christina Romer and Harry Markowitz, among other Nobel Laureates.  Investment Management Network has developed long-term relationships with many of the largest and most influential investors around the globe.


+December 7-9, 2014


Alternative Investing Summit and CLO Summit produced by Opal Financial Group

Ritz-Carlton, Laguna Niguel

Dana Point, CA


Opal Financial Group is an organization offering peer networking and educational conferences in numerous continents.  This year, the Alternative Investing Summit will run in conjunction with the CLO Summit, which will provide additional opportunities for participants.  Opal Financial Group works closely with small and mid-sized plans, as well as with national, state and local industry associations and trade groups that represent the institutional investor community.  Hundreds of pension professionals from around the country will come together to discuss the most pressing issues affecting funds, including fiduciary responsibility, plan funding and maximizing investments.


+December 16-17, 2014


CORPaTH International Pension Alliance

Caesars Palace

Las Vegas, Nevada


“CORPaTH is an alliance of trustees, consultants, asset managers, administrators, elected officials and other professionals who oversee pension assets and Guaranteed Lifetime Income Accounts (GLIA) for the benefit of working men and women who earn and deserve a secure retirement.” CORPaTH is an advocate for its members on issues critical to the current and future health of pension funds.  CORPaTH’s mission is to protect and expand defined benefit pension plans and insist on high quality corporate governance and responsible investment strategies focusing on economic sustainability, financial market accountability and common sense regulation.


Government Finance Officers’ Association Conferences


+December 4-5, 2014


Wisconsin Government Finance Officers’ (WGFOA) Winter Conference

Tundra Lodge

Green Bay, Wisconsin


+December 10-12, 2014


New Mexico Municipal League (NMML) Winter Conference

Albuquerque, Marriott

Albuquerque, New Mexico


+December 10-12, 2014


North Carolina Local Government Budget (NCLGBA) Winter Conference

Pinehurst Resort

Pinehurst, North Carolina


Table of Contents 

Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firm represents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.

Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client  relations is a proven method for institutional investors and their trustees to successfully

  • Monitor their investment portfolios  
  • Identify losses arising from corporate fraud    
  • Consider what level of participation any given situation requires   
  • Recover funds obtained on their behalf through investor litigation action  

To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please contact:    David R. Scott + Toll Free: 800.404.7770     email: + UK Tel: 0808.234.1396