UNITEDSTATESDISTRICTCOURT …securities.stanford.edu/filings-documents/1035/LBI05_01/2006523_r... · CESARAGUIRREURBANEJA,JOSELUIS ZAMBRANO,MALLIYASALAZAR,JULIO LEDESMA,FERNANDOQUEVEDO,ENRIQUE

Case 1:05-cv-21169-KMM Document 242 Entered on FLSD Docket 05/23/2006 Page 1 of 71 q

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF FLORIDA

CASE NO.: 05-21169-CIV-MOORE

CESAR AGUIRRE URBANEJA, JOSE LUISZAMBRANO, MALLIYA SALAZAR, JULIOLEDESMA, FERNANDO QUEVEDO, ENRIQUELOESER BRAVO, DR. MARTHA LANDIVARGANTIER, AND FABIO EDUARDO MORENO 1014T boxCHARME, individually and on F I L "'0behalf of all others similarly situated, MAY

2i

vs.

Plaintiffs,MAnrl0X

CONN. I:.aF _/ MIA

LEHMAN BROTHERS, INC., a New YorkCorporation ; MERRILL LYNCH, PIERCE,FENNER & SMITH, INC., a Delaware Corporation;RAYMOND JAMES FINANCIAL SERVICES, INC.,a Florida Corporation ; OLIVA INVESTMENTGROUP, INC., a Florida Corporation ; SUNTRUSTBANKS, INC., a Georgia corporation, HSBCBank, U.S.A., Luis Cornide, and Robert A. dela Riva,

Defendants.

THIRD AMENDED CLASS ACTION COMPLAINT

Plaintiffs Cesar Aguirre Urbaneja, Jose Luis Zambrano, Malliya Salazar, Julio Ledesna,

Fernando Quevedo, Enrique Loeser Bravo, Dr. Martha Landivar Gantier, and Fabio Eduardo

Moreno Charme, individually and on behalf of all others similarly situated, by their undersigned

attorneys, bring this action against Defendants Lehman Brothers, Inc. ("Lehman Brothers");

Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch"); Raymond James Financial

Services, Inc . ("Raymond James"); Oliva Investment Group, Inc. ("OIG"); SunTrust Banks, Inc.

("SunTrust") and HSBC Bank, U.S.A. ("HSBC") (referred to collectively as "the Financial

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I

Institution Defendants"), Luis Cornide ("Comide") and Robert A. de la Riva ("de la Riva"),

individually, (the Financial Institution Defendants, Cornide and de la Riva are referred to

collectively as "Defendants") and respectfully state as follows:

INTRODUCTION

1. Plaintiffs bring this action against the Defendants for their violations of Sections

12 and 22(a) of the Securities Act of 1933 ( Securities Act"), 15 U.S.C. §§ 771, 77q(a), and

77v(a); and Sections 10(b) and 27 of the Securities Exchange Act of 1934 ("Exchange Act"),

15 U.S.C. §§ 78j(b) and 78aa, and violations of Section 12 and 156 of the Securities Act, 15

U.S.C. §§ 77(1) and 77(o), in connection with the sale of unregistered securities and the

fraudulent scheme perpetrated by Defendants and Pension Fund of America, its affiliated

entities and principals ("PFA"), in defrauding thousands of PFA' s investors out of at least $127

million.

2. On March 28, 2005, The United States Securities and Exchange Commission

("SEC") exposed PFA's fraud. On that day, the SEC filed a Complaint for Injunctive and

Other Relief, and the Court entered a Temporary Restraining Order and other Emergency

Relief. It was only with the filing of the SEC's action that Plaintiffs and the Class became

aware of PFA's fraud and began to uncover Defendants' roles in perpetrating an investment

fraud.

PARTIES

3. Plaintiff Cesar Aguirre Urbaneja is a Venezuelan citizen who invested

approximately $50,000.00 in a Liberty Plan retirement trust. Mr. Aguirre Urbaneja executed a

Plan Application Form on December 12, 2000, designating Defendant SunTrust Bank as the

trustee of his funds. On December 22, 2000, Mr. Aguirre Urbaneja executed an individual

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Case 1 : 05-cv-21169-KMM Document 242 Entered on FLSD Docket 05/23/2006 Page 3 of 71 q

Trust Agreement with Defendant SunTrust. In addition to these documents, Mr. Aguirre

Urbaneja received uniform solicitation and promotional materials which were used by PFA and

SunTrust, as co-sponsors , to promote the PFA investment trust . After SunTrust unilaterally and

without notice to Mr. Aguirre Urbaneja resigned as trustee , AG Edwards and Defendant HSBC

became trustees of Mr. Aguirre Urbaneja's funds. Successor AG Edwards became the trustee

for Mr. Aguirre's retirement plan in January of 2003 and the plan was subsequently transferred

into Defendant HSBC's trust in 2004. Mr. Aguirre Urbaneja has continued to hold his

investments in PFA to date.

4. Plaintiff Jose Luis Zambrano is an Ecuadorian citizen who invested

approximately $92,500.00 in two Capital Plus retirement trusts. Mr. Zambrano executed two

Plan Application Forms one on June 27 , 2002 and the other on June 12, 2003, designating

Defendant Lehman Brothers as the trustee of his funds. In addition to these documents, Mr.

Zambrano received uniform solicitation and promotional materials which were used by PFA

and Lehman Brother, as co-sponsors, to promote the PFA investment trust. He has continued

to hold his investment in PFA to date.

5. Plaintiff Malliya Salazar is an Ecuadorian citizen who invested approximately

$40,000.00 in a Capital Plan retirement trust. Mrs. Salazar executed a Plan Application Form

on January 24, 2003, designating Defendant Lehman Brothers as the trustee of her funds. In

addition to these documents, Mrs. Salazar received uniform solicitation and promotional

materials which were used by PFA and Lehman Brothers, as co-sponsors, to promote the PFA

investment trust. She has continued to hold her investment with PFA to date.

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6. Plaintiff Julio Ledesna is an Argentine citizen who invested approximately $7,500

in a Liberty Plus retirement trust. Mr. Ledesna executed a Plan Application Form on May 19,

2003, designating Defendant Merrill Lynch as the custodian of his funds. In addition to these

documents, Mr. Ledesna received uniform solicitation and promotional materials which were

used by PFA and Merrill Lynch, as co-sponsors, to promote the PFA investment trust. He has

continued to hold his investment with PFA to date.

7. Plaintiff Fernando Quevedo is a Bolivian citizen who invested approximately

$2,000.00 in a Liberty Plus retirement trust . Mr. Quevedo executed a Plan Application Form

on July 31, 2003 designating Defendant Merrill Lynch as the custodian of his funds. In

addition to these documents, Mr. Quevedo received uniform solicitation and promotional

materials which were used by PFA and Merrill Lynch, as co-sponsors , to promote the PFA

investment trust. In August of 2004, Mr. Quevedo's funds were transferred to Defendant

Raymond James , which was designated trustee of Mr. Quevedo' s funds . He has continued to

hold his investment with PFA to date.

8. Plaintiff Enrique Loeser Bravo is a citizen of Chile who invested approximately

$25,000.00 in a Liberty Plus and Capital Plan retirement trusts. Mr. Loeser Bravo executed

two Plan Application Forms on January 19, 2004, both designating Defendant Raymond James

as the trustee of his funds. In addition to these documents, Mr. Loeser Bravo received uniform

solicitation and promotional materials which were used by PFA and Raymond James, as co-

sponsors, to promote the PFA investment trust.He has continued to hold his investment with

PFA to date.

9. Plaintiff Dr. Martha Landivar Gantier is a Bolivian citizen who invested

approximately $113,000.00 in a Capital Trust and a Liberty Plus retirement trust. Dr. Landivar

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Gantier executed Plan Application Forms on May 31, 2004 and on February 24, 2005,

designating Defendant Raymond James as the trustee of her funds invested in the Liberty Plus

trust and Defendant HSBC as the trustee of her funds invested in the Capital Plan Trust. In

addition to these documents, Dr. Landivar Gantier received uniform solicitation and

promotional materials which were used by PFA and both Raymond James and HSBC,

respectively, as co-sponsors, to promote the PFA investment trust. She has continued to hold

her investment with PFA to date.

10. Plaintiff Fabio Eduardo Moreno Charme is a Chilean citizen who invested

approximately $30,000.00 in a Capital Plan retirement trust. Mr. Moreno Charme executed a

Plan Application Form on April 14, 2004, designating Defendant HSBC as the trustee of his

funds. In addition to these documents, Mr. Moreno Charme received uniform solicitation and

promotional materials which were used by PFA and HSBC, as co-sponsors , to promote the

PFA investment trust. He has continued to hold his investment with PFA to date.

11. Defendant Lehman Brothers is a national banking and brokerage institution that is

incorporated in New York and has its principal place of business in New York, New York.

Lehman Brothers is registered to do business in Florida with offices in Miami-Dade County.

12. Defendant Merrill Lynch is a national financial management and advisory

company that is incorporated in Delaware and has its principal place of business in New York,

New York. Merrill Lynch is registered to do business in Florida with offices in Miami-Dade

County.

13. Defendant Raymond James is a Florida corporation with its principal place of

business in St . Petersburg , Florida and offices in Miami-Dade County.

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14. Defendant OIG is a Florida Corporation, with principal place of business at 255

Alhambra Circle, Suite 680 Coral Gables, Florida 33134. At all times material hereto, OIG has

served as the agent and representative of Raymond James and served as the principal agent for

communications between Raymond James and PFA, its principals , agents and investors.

15. Defendant SunTrust is a national banking institution that is incorporated in

Georgia with its principal place of business in Atlanta, Georgia. SunTrust Bank is registered to

do business in Florida with branches in Miami-Dade County.

16. Defendant HSBC is a national banking institution with its principal place of

business in Buffalo , New York, and at all times material to this action was registered to do

business in Florida with offices in Miami-Dade County.

17. Defendant Luis Cornide was a principal and insider of PFA who held the title of

President of Pension Fund, PFA Assurance and Secretary of PFA International. Beginning in

1997 and continuing until 2005, Cornide drafted, wrote, reviewed, revised and/or caused to be

published, with others, the promotional and offering materials that PFA and its sales agents

presented to Plaintiffs, including but not limited to informational brochures, sales agent

information, and the application form ("PFA investment contract") which PFA used to solicit

Plaintiffs' investment. At all times material hereto, Cornide exercised control over PFA's

general affairs, including the content of public statements disseminated by the company, and

was a resident of Miami-Dade County, Florida.

18. Defendant Robert de la Riva was a principal and insider of PFA who held the

title of Senior Vice-President of Pension Fund, Director of PFA Assurance and Secretary of

PFA International. Beginning in 1997 and continuing until 2005, de la Riva drafted, wrote,

reviewed, revised and/or caused to be published, all with the assistance of others, the

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promotional and offering materials that PFA and its sales agents presented to Plaintiffs,

including but not limited to informational brochures, sales agent information, and the

application form ("PFA investment contract") which PFA used to solicit Plaintiffs' investment.

At all times material hereto, de la Riva exercised control over PFA's general affairs, including

the content of public statements disseminated by the company, and was a resident of Miami-

Dade County, Florida.

JURISDICTION AND VENUE

19. This Court has jurisdiction over this action pursuant to Sections 12 and 22(a) of

the Securities Act, 15 U.S.C. §§ 771, 77q(a), and 77v(a); and Sections 10(b) and 27 of the

Exchange Act, 15 U. S.C. §§ 78j (b) and 78aa.

20. This Court has personal jurisdiction over the Defendants and venue is proper in

the Southern District of Florida because: a) each Financial Institution Defendant has offices in

Miami-Dade County and is registered to do business and is doing business in this district; b)

each individual defendant resided and was employed by PFA in this district; and, c) virtually

all of the Defendants' wrongful conduct occurred in the Southern District of Florida.

21. Venue is also proper in this district pursuant to 28 U.S.C. §1391(c) because a

substantial part of the events and omissions giving rise to Plaintiffs' claims occurred in and/or

originated from the Southern District of Florida and, as set forth in the preceding paragraph,

Defendants are subject to personal jurisdiction in this district.

22. Further, the Defendants, directly and indirectly, have made use of the means and

instrumentalities of interstate commerce, and the mails, in connection with the acts, practices

and courses of business set forth in this Complaint.

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PFA's Business Scheme

23. PFA was a Florida corporation with its principal place of business in Coral

Gables, Florida. From 1999 through March 28, 2005, when the SEC filed its enforcement

action and obtained a temporary restraining order against PFA and Defendants Cornide and de

la Riva, PFA and the Financial Institution Defendants, as co-sponsors , offered for sale what

they claimed were retirement and educational trusts to investors throughout the world,

principally in Latin America. During this time, upon information and belief, PFA attracted

$127 million through the sales of trust plans to approximately 3,400 investors.

24. PFA, and its affiliated entities PFA International, Inc. and Claren TPA, and

principals Cornide and de la Riva, were unregistered investment advisers. PFA and the

Financial Institution Defendants successfully marketed investment securities by touting the

safety of investing through them with the Financial Institution Defendants serving as trustees,

custodians and fiduciaries of investor funds. PFA and the Financial Institution Defendants'

joint marketing, offering and promotional activities all originated in South Florida.

25. Through its network of sales agents and brokers, PFA and the Financial

Institution Defendants offered several trust plans, including but not limited to: a) the Liberty

Trust, which was a monthly or annual contribution plan; and b) the Capital Trust, a one-time

contribution plan. Approximately 85% of all investors choose the Liberty Trust. The Liberty

Trust required annual contributions of between $1,000 and $20,000 for ten to fifteen years, and

imposed significant early withdrawal penalties - for example, 100% for the first two years and

declining thereafter for the entire term of the plan. The Capital Trust was a ten-year plan that

required a minimum one-time contribution of $10,000. The investment component of both

plans offered investors the option of directing the investment of their funds into mutual funds

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offered by well-known U.S. mutual fund companies, such as Fidelity, Legg Mason, Janus and

Goldman Sachs. The mutual funds offered to investors were selected by the Financial

Institution Defendants, who collected a sales fee, or "load," from the sales of these funds. The

solicitation and promotional materials offered Plaintiffs and the Class an investment in mutual

funds combined with a term life insurance component, secured by a trust relationship with the

Financial Institution Defendants, which purported to give investors a secure return on their

investments and assured them of the safe handling of their funds.

The Financial Institution Defendants ' Duties and Obligations to Plaintiffs

26. The Financial Institution Defendants actively solicited and voluntarily accepted

the trust and confidence of Plaintiffs and the Class, and in so doing undertook an obligation to

disclose to Plaintiffs and the Class all material facts regarding their investments in the PFA

trusts. The participation of the Financial Institution Defendants was critical to the marketing of

the PFA trust plans because it supplied legitimacy and the appearance of security to the

investments. Indeed, the very point of including the Financial Institution Defendants as co-

sponsors and participants in the sale of the PFA trust plans was so that investors would take

comfort in the involvement of large U.S. institutions who would be the custodians and/or

trustees of investor funds and would be responsible for insuring the proper handling of those

funds . Absent the illusion of safety and security that the involvement of the Financial

Institution Defendants provided , the PFA trust plans could not have been successfully

marketed.

27. PFA and the Financial Institution Defendants jointly marketed their relationship

to investors through the PFA investment contract and related solicitation and promotional

materials . An integral part of PFA' s business plan was to induce Plaintiffs ' investment by

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t

highlighting the trustee/custodial role to be played by the Financial Institution Defendants. To

this end, PFA's original business plan stated that in order "to boost sales" PFA would "enter

into agreements with large multi-national banks with strong recognition in Latin America."

PFA's marketing and promotional materials, and the PFA investment contract, referred to

Defendants SunTrust, Merrill Lynch, Lehman Brothers, Raymond James and HSBC as

"trustees ," "trustee banks," "custodial banks," or "fiduciary banks ." As stated by PFA's

President, Comide, in a letter dated June 17, 2003, PFA's business model was shared with

these Financial Institution Defendants from the very beginning of PFA's operations.

28. Through the PFA investment contract and related solicitation and promotional

materials distributed to each investor and co-sponsored by the Financial Institution Defendants,

Plaintiffs and the Class were assured that the Financial Institution Defendants, as trustees

and/or custodians of their funds, would insure that the explicit protections of the purportedly

"secure" retirement trusts were fulfilled. The Defendant Financial Institutions were aware that

Plaintiffs were reposing trust and confidence in them to safeguard Plaintiffs' investments,

thereby accepting for themselves a duty to disclose all material facts with regard to those

investments.

29. PFA and SunTrust jointly marketed their relationship to investors and described

the role of SunTrust as a "trustee for all participants of Pension Fund of America' s pension

plans," thereby inducing Plaintiffs and the Class to repose trust and confidence in SunTrust. At

the same time that it accepted Plaintiffs' trust, SunTrust was aware that the investment contract

required Plaintiffs to certify that the selected "mutual funds" were presented "by SunTrust to

me as an investment option available among other investment options offered as part of

SunTrust's Comprehensive Management and Trust Services." The investment contract

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provided that "payment should be made directly to SunTrust." Plaintiffs were provided with

wire transfer information in order to effectuate direct payment to SunTrust. The same

investment contract called for SunTrust's signature as indicating "acceptance by the Bank

Trustee." Finally, the investment contract provided that Plaintiff was instructing the fiduciary

bank "to acquire participation [in designated mutual funds] in accordance with the terms of this

contract." Through these materials and representations , SunTrust knew that investors who

designated SunTrust as their trustee bank were reposing trust and confidence in SunTrust to

safeguard their investment, thereby accepting for itself a duty to disclose all material facts with

regards to those investments . SunTrust, in violation of this duty, failed to inform Plaintiff

Cesar Aguirre Urbaneja, and those other members of the Class who agreed to have SunTrust

serve as trustee of their funds, that it was not fulfilling its role as trustee, and instead remained

silent as investor funds were improperly handled and misappropriated.

30. PFA and Lehman Brothers jointly marketed their relationship to investors and

described the role of Lehman Brothers as being the "trustee bank," thereby inducing Plaintiffs

and the Class to repose trust and confidence in Lehman Brothers . The PFA investment

contract referred to Lehman Brothers as "trustee" and instructed Plaintiffs that "payment

should be made directly to Lehman Brothers." The investment contract provided wire transfer

information for Lehman Brothers ' account at Chase Manhattan Bank in New York City, in

order to allow Plaintiffs to entrust their funds directly to Lehman Brothers. The investment

contract further called for signature by Lehman Brothers signaling the "acceptance by the Bank

Trustee." The investment contract provided that the investor "hereby directs the Trustee to

purchase shares in designated mutual funds pursuant to the terms of this Agreement." Finally,

the investment contract required that the Grantor be given "sixty day written notice" if Lehman

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Brothers wanted to resign its duties as trustee. At the same time that it accepted Plaintiffs'

trust , Lehman Brothers was aware that in related solicitation and promotional materials,

investors were promised that "if you invest with Pension Fund of America you will have the

peace of mind of knowing that your money is invested in companies like Lehman Brothers ...

which enjoy great liquidity , stability and extensive experience since 1869 , and is recognized as

one of the major financial institutions in the United States ." Through these materials and

representations , Lehman Brothers knew that investors who designated Lehman Brothers as

their trustee bank were reposing trust and confidence in Lehman Brothers to safeguard their

investment, thereby accepting for itself a duty to disclose all material facts with regards to

those investments . Lehman Brothers , in violation of this duty, failed to inform Plaintiffs Jose

Luis Zambrano and Malliya Salazar, and those other members of the Class who agreed to have

Lehman Brothers serve as trustee of their funds , that it was not fulfilling its role as trustee, and

instead remained silent as investor funds were improperly handled and misappropriated.

31. PFA and Merrill Lynch jointly marketed their relationship to investors and

described the role of Merrill Lynch as being the "custodian of the program," thereby inducing

Plaintiffs and the Class to repose trust and confidence in Merrill Lynch. At the same time that

it accepted Plaintiffs' trust, Merrill Lynch was aware that related solicitation and promotional

materials described the PFA investment with Merrill Lynch as "guaranteed by Merrill Lynch."

In solicitation and promotional materials distributed to investors with Merrill Lynch's logo

embossed across the top, investors were promised "100% guarantee of capital by Merrill

Lynch." In these solicitation materials , investors also were promised "guaranteed returns"

ranging from 121.6% to 125% of invested principal. Through these materials and

representations , Merrill Lynch knew that investors who designated Merrill Lynch as their

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custodian bank were reposing trust and confidence in Merrill Lynch to safeguard their

investment, thereby accepting for itself a duty to disclose all material facts with regards to

those investments. Merrill Lynch, in violation of this duty, failed to inform Plaintiffs Julio

Ledesna and Malliya Salazar, and those other members of the Class who agreed to have Merrill

Lynch serve as custodian of their funds, that it was not fulfilling its role as custodian and

guarantor, and instead remained silent as investor funds were improperly handled and

misappropriated.

32. PFA and Raymond James jointly marketed their relationship to investors and

described the role of Raymond James as being that of "sole custodian of the program" and

"Trustee Bank," thereby inducing Plaintiffs and the Class to repose trust and confidence in

Raymond James. The PFA investment contract represented to Plaintiffs that their "investment

payment should be made directly to Raymond James." Further, the Guide To Plan Provisions

(the "Guide"), which Raymond James reviewed prior to agreeing to accept investor funds,

states: "Trustee Bank refers to Raymond James Financial, which shall serve as trustee for the

Investment Component of the plan and to make investments during the lifetime of the plan."

Through these materials and representations, Raymond James knew that investors who

designated Raymond James as their trustee bank were reposing trust and confidence in

Raymond James to safeguard their investment, thereby accepting for itself a duty to disclose all

material facts with regards to those investments. Raymond James, in violation of this duty it

owed to Plaintiffs, failed to inform Plaintiffs Enrique Loeser Bravo and Dr. Martha Landivar

Gantier, and those other members of the Class who agreed to have Raymond James serve as

trustee of their funds, that it was not fulfilling its role as custodian and guarantor, and instead

remained silent as investor funds were improperly handled and misappropriated.

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33. PFA and HSBC jointly marketed their relationship to investors and described the

role of HSBC as being PFA's investor' s "trustee bank," thereby inducing Plaintiffs and the

Class to repose trust and confidence in HSBC. At the same time that it accepted Plaintiffs'

trust, HSBC was aware that in related solicitation and promotional materials, PFA and HSBC

promised investors "total safety because the money deposits are received directly by HSBC

Bank USA." Investors were told that "payments should be made directly to HSBC Bank

USA." Investors were promised that "your money will be in the best of hands: HSBC Bank

USA." PFA and HSBC represented to investors that "PFA and HSBC Bank USA had created

the Liberty Plan Trust." PFA and HSBC's joint promotional materials promised Plaintiffs the

"your investment will be protected" because "HSBC Bank USA is the fiduciary bank for the

Liberty Plan Trust." The solicitation and promotional materials provided to investors referred

to the PFA Trust repeatedly as "products ofPFA and HSBC Bank USA." The PFA and HSBC

joint solicitation and promotional materials even represented to Plaintiffs that the PFA

retirement trusts were regulated by the Securities and Exchange Commission and the Florida

Office of Financial Regulation. The investment contract instructed Plaintiffs to "make

payments directly to HSBC Bank USA." Through these materials and representations, HSBC

knew that investors who designated HSBC as their trustee bank were reposing trust and

confidence in HSBC to safeguard their investment, thereby accepting for itself a duty to

disclose all material facts with regards to those investments HSBC, in violation of this duty

failed to inform Plaintiff Fabio Eduardo Moreno Charme, and those other members of the

Class who agreed to have HSBC serve as trustee of their funds, that it was not fulfilling its role

as trustee , and instead remained silent as investor funds were improperly handled and

misappropriated.

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34. The PFA investment contract and related solicitation and promotional materials

were co-authored, edited, reviewed and/or approved by SunTrust, Lehman Brothers, Merrill

Lynch, Raymond James and HSBC and were designed by PFA and the Financial Institution

Defendants to attract investors by lulling them into a false sense of security.

35. The PFA investment contract and related solicitation and promotional materials

were used on a continuous basis from 1999 through 2005 to solicit new investor funds. The

joint solicitation of investors was a continuing offering. As new Financial Institution

Defendants agreed to undertake the role of fiduciary, trustee and custodian of Plaintiffs' funds,

the PFA investment contract and related solicitation and promotional materials were amended

to reflect the identity of the new trustee/custodian bank, while continuing to tout the essential

role played by the Financial Institution Defendants in ensuring the proper handling of investor

funds, and were uniformly used to induce Plaintiffs and the Class to repose trust and

confidence in the Financial Institution Defendants.

36. Moreover, after inducing PFA investors to rely on them as trustees, custodians

and fiduciaries, and to repose confidence and trust in them, the Financial Institution Defendants

stood silent and failed to disclose to Plaintiffs and the Class all material facts known to them

regarding PFA operations and the improper handling of investor funds. These omissions led

directly to the losses suffered by Plaintiffs and the Class.

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The Fraud on Investors

37. Unbeknownst to Plaintiffs and the Class, the money invested through PFA was

diverted and dissipated through a massive fraud, with the knowledge and participation of the

Financial Institution Defendants.

38. In violation of their duty to Plaintiffs and the Class, each Financial Institution

Defendant failed to disclose to them that it had improperly pooled investor funds, and had not

segregated each individual retirement trust established by the Class members.

39. In violation of their duty to Plaintiffs and the Class, each Financial Institution

Defendant failed to disclose to them that it had allowed PFA to exert complete control over the

investor funds entrusted to each Financial Institution Defendant.

40. In violation of their duty to Plaintiffs and the Class, the Financial Institution

Defendants failed to disclose to them that PFA's insiders were siphoning as much as 90

percent, and sometimes 100 percent, of investor funds for non-investment purposes. For

example, PFA's principals , Cornide and de la Riva, used the investors ' funds to pay themselves

exorbitant salaries and bonuses, and buy millions of dollars of real estate in Coral Gables and

the Florida Keys. From 1999 to March 28, 2005, unbeknownst to investors, Cornide and de la

Riva received payments from PFA totaling $15 million - 35% of the $43 million in revenue

the companies reported for the same period.


Defendants knowingly stood silent as investors were sent fraudulent account statements, which

misrepresented the status and balance of investor retirement trust accounts. Annual statements

indicated an investor's "final balance" or "total contribution;" these figures only reflected the

total initial investment , failing to disclose the significant amounts diverted by PFA and the

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much lower amounts actually used to purchase mutual funds. Thus, the annual statements and

certificates delivered to investors vastly overstated the actual amount of investor holdings.

Nevertheless, the Financial Institution Defendants continued to permit PFA to use their names,

logos and corporate reputations to induce Plaintiffs and the Class to repose trust and

confidence in them and to cause Plaintiffs and the Class to make additional investments in the

funds.


Defendants failed to disclose other material facts known to them regarding PFA's operations

and the improper handling of Class members' funds, as set forth more fully below as to each

Financial Institution Defendant.

The Defendants Financial Institutions ' Across-The-BoardFraudulent Omissions and Misrepresentations

43. Each Financial Institution Defendant expressly undertook a fiduciary duty to

Plaintiffs and members of the class. Each Financial Institution Defendant had a duty to

disclose material facts relative to Plaintiffs' and the Class' investments with PFA. Each

Financial Institution Defendant omitted to disclose all material facts regarding Plaintiffs' and

the Class' investments with PFA to Plaintiffs and the Class. At all relevant times Defendants

committed these acts knowingly or acted with severe recklessness.

44. The PFA investment contracts , co-sponsored by the Financial Institution

Defendants, are securities not exempt from the registration requirements set forth in Section 5

of the Securities Act of 1933; 15 U.S.C. § 77e. PFA and the Financial Institution Defendants

failed to inform Plaintiffs and the Class that the securities they jointly marketed and sold to

them were unregistered. Indeed, Defendants had actual knowledge, or were severely reckless in

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not knowing, that the securities at issue were required to be registered, failed to disclose this

fact to investors, and solicited investors to purchase unregistered securities notwithstanding the

lack of compliance with federal and state registration requirements.

45. PFA also was required by law to be a registered broker-dealer and was not

otherwise exempt from registration. In addition, PFA was required by law to be a registered

investment advisor and was not otherwise exempt from registration. PFA failed to properly

register as a broker-dealer or as an investment advisor. The Financial Institution Defendants

knew, or were severely reckless in not knowing, that PFA was required to register as a broker-

dealer and investment advisor, and that PFA had failed to so register, but they failed to disclose

these facts to investors.

46. After receiving investor funds, each Financial Institution Defendant pooled the

monies into one account over which PFA exerted complete control. Each Financial Institution

Defendant's failure to disclose that they were structuring accounts to give PFA total control

over investor funds was a material omission , in violation of the duty that the Financial

Institution Defendants owed to Plaintiffs and the Class.

47. None of the Financial Institution Defendants disclosed to Plaintiffs and the Class

that, in violation of their voluntarily-undertaken duties as custodians/trustees , they were

making no effort to insure that investors' instructions regarding the investment of their funds

were being followed, or to insure that those funds were being properly handled. Each

Financial Institution Defendant's failure to disclose that they were taking sole investment

instructions from PFA and that they had abdicated their duties to insure that investors'

instructions were being followed were material omissions in violation of the duty the Financial


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48. After receiving investor funds , PFA arbitrarily decided whether and when to buy

the term life component of the retirement trust. Each Financial Institution knew or was

severely reckless in not knowing that the investor funds in their possession were not being used

to purchase the promised life insurance contracts. Each Financial Institution's omission

regarding the failure to purchase the term life insurance coverage, which had been promised to

Plaintiffs and the Class, was a material omission in violation of the duty the Financial


49. Raymond James, Merrill Lynch, Lehman Brothers, OIG and HSBC remained

silent, in violation of their duty to Plaintiffs and the Class, as investors were sent fraudulent

account statements which misrepresented investment account balances. The annual statements,

which bore the logo and name of each of these Financial Institution Defendants (except OIG),

indicated an investors' "final balance" or "total contribution." However, each Financial

Institution Defendant knew, or was severely reckless in not knowing, that the disclosed

amounts only reflected the total initial investment, and did not disclose the much lower amount

actually on deposit. Each Financial Institution Defendant's failure to disclose the much lower

actual account balances they were holding was a material omission which disguised PFA's

diversion of investor funds, lulled investors into holding their investments and, in the case of

Liberty Plan Trust investors , induced investors into making annual "investment renewal"

contributions in "Trust" with the Financial Institution Defendant. In the case of SunTrust, the

false and misleading account statements, containing the same omissions noted above, were sent

directly by SunTrust to investors , which also remained silent in violation of its duty to

Plaintiffs and the Class.

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t

50. The Financial Institution Defendants repeatedly omitted to disclose to Plaintiffs

and the Class material facts about their investments and which they had an affirmative duty to

disclose. The Financial Institution Defendants also employed a device, scheme and artifice to

defraud, and engaged in acts, practices and courses of business which operated as a fraud upon

Plaintiffs and the Class, by assuring them that their investment decisions would be followed

and that the security of their funds was in the capable hands of the Financial Institution

Defendants, and then taking no steps to actually effectuate these assurances. Instead, the

Financial Institution Defendants gave total control over investor funds to PFA, in a manner

inconsistent with their undertakings to Plaintiffs and the Class, and failed to inform Plaintiffs

and the Class that they had done so. The Financial Institution Defendants compounded the

harm done by them to Plaintiffs and the Class by quietly resigning once they learned of PFA's

fraud, in complete violation of the duty they owed to Plaintiffs and the Class, thus allowed the

scheme to continue and investors to suffer new and additional losses.

SunTrust's Role and Knowledge of the Fraud on Plaintiffs

51. SunTrust was the first financial institution to co-sponsor the PFA trust plans and

to agree to serve as trustee of investor funds. In fact, SunTrust played an integral role in the

formation of PFA and the development of its business plan. Ary Velasco, Vice-President and

Business Development Officer for SunTrust , was a childhood friend of Luis Cornide. As early

as September 15, 1997, Velasco met with Cornide to discuss creating "domestic trusts for

foreign grantors ." During meetings through the late Spring and Summer of 1999 (5/13, 6/4,

6/11, 7/2, 7/9, 7/10, 7/17 and 7/31 ), SunTrust met with Defendants Cornide and de la Riva to

formulate PFA's business plan, trust agreements and initial offering and promotional materials.

SunTrust officials Ary Velasco and Oscar Suris offered direct input and helped formulate

-20-


I

PFA's trust agreements and initial offering and promotional materials. SunTrust's lawyers at

Baker & McKenzie and Steel Hector & Davis also were consulted by SunTrust regarding

PFA's trust agreements , offering and solicitation documents and business plan.

52. In an internal memorandum dated September 10, 1999, Ary Velasco

acknowledged that PFA would be advising investors that SunTrust would "act as Trustee for

the individual non-resident Latin American clients" of PFA.

53. In a September 14, 1999 memo SunTrust's Trust Department advised Velasco

that the relationship proposed to be offered by SunTrust and PFA needed to be reviewed by the

Bank's Fiduciary Oversight Committee to address "banking/insurance/fiduciary questions."

SunTrust never disclosed to Plaintiff Cesar Aguirre Urbaneja, or those other members of the

Class who agreed to have SunTrust serve as trustee of their funds, that this required

compliance review of the promised "fiduciary" or "trustee" relationship with individual PFA

investors never was secured.

54. The SunTrust Account Opening Form for PFA, dated September 22, 1999, reveals

that SunTrust and PFA as co-sponsors of this new investment product were sharing on a 50/50

basis the "institutional fee" equal to 50 basis points to be paid by the mutual fund clients

selected to participate in the PFA program. SunTrust and PFA never disclosed this fee

"kickback" to Plaintiff, Cesar Aguirre Urbaneja, or those other members of the Class who

agreed to have SunTrust serve as trustee of their funds.

55. On September 30, 1999, Ary Velasco received and reviewed the PFA investment

contract to be sent to investors containing the various representations and promises about

SunTrust's role as trustee of investor funds and obligation to insure the safe and appropriate

handling of those funds.

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k t

56. In solicitation materials reviewed and approved by SunTrust, investors were

advised that their funds would be held in segregated accounts "in Trust" by SunTrust.

SunTrust never disclosed to Plaintiff Cesar Aguirre Urbaneja, or those other members of the

Class who agreed to have SunTrust serve as trustee of their funds, that investor funds deposited

with SunTrust were commingled in accounts titled in the name of PFA and under the complete

control of PFA's insiders. SunTrust's failure to maintain segregated investor accounts "in

Trust" for the investors provided PFA's insiders unfettered control over investor funds and

enabled their diversion. SunTrust also failed to disclose that the structure it created with PFA

for the investment account was contrary to its duties as trustee.

57. SunTrust offered investors the option of placing their money in mutual funds

managed directly by SunTrust, such as "SunTrust Capital Appreciation Fund" or "SunTrust

Tax Sensitive Fund", as the investment component of the PFA investment Trust, thereby

solidifying SunTrust's role as the investment promoter and co-sponsor and permitting SunTrust

to earn additional fees.

58. PFA's trusts were marketed as providing both an investment and insurance

component. Pursuant to individual Trust Agreements signed by Plaintiff Cesar Aguirre

Urbaneja, and those other members of the Class who agreed to have SunTrust serve as trustee

of their funds, SunTrust undertook a duty to, inter alia: "(1) retain as assets all mutual fund

shares, insurance contracts, annuity contracts, if any, purchased for the benefit of the

Beneficiary at the direction of the Grantor [investor], (2) pay all premiums on insurance

policies.... and (3) provide investors 120 day written notice before resigning as the Trustee of

their funds." In the PFA investment contract signed by Plaintiff Cesar Aguirre Urbaneja and

those other members of the Class who agreed to have SunTrust serve as trustee of their funds,

-22-


investors were told that "The Trustee bank is the owner & beneficiary of the policy so you

must mark (section 3.2) which trustee bank will be used for the client's plan." The same

investment contract contained an application for insurance through PFA Assurance or

"Cayman General Insurance Co. Ltd." As trustee, SunTrust undertook the obligation to insure

that investor funds would be used to purchase insurance policies for the benefit of Plaintiff

Cesar Aguirre Urbaneja, and those members of the Class who agreed to have SunTrust serve as

trustee of their funds. SunTrust failed to disclose to Plaintiff Cesar Aguirre Urbaneja, and

those other members of the Class who agreed to have SunTrust serve as trustee of their funds,

that none of the investor funds deposited in SunTrust's accounts were ever used to purchase

insurance directly from insurance companies. SunTrust also knew, and failed to disclose, that it

never took possession of any insurance contracts, nor did it pay insurance premiums as set

forth in its agreement with investors.

59. SunTrust, as co-sponsor of the PFA trust plans , employed a scheme and artifice to

defraud, and engaged in a course of business which operated as a fraud, on Plaintiff Cesar

Aguirre Urbaneja, and those other members of the Class who agreed to have SunTrust serve as

trustee of their funds, by marketing the safety of the PFA trusts based on SunTrust' s role in

safeguarding investor funds, while simultaneously structuring SunTrust's relationship with

PFA in a manner that granted PFA insiders unfettered control and use of investor funds.

60. As soon as the investor funds began to roll in, SunTrust learned that PFA was

diverting investor funds for improper purposes. For example, in November of 1999, Robert de

la Riva faxed Ary Velasco a page from a PFA Sales Manual which promised Liberty Plan

Participants that a minimum of 30% of their first year contribution would go directly into the

designated mutual funds. Yet, throughout November 1999, SunTrust regularly was receiving

-23-


from PFA "Pension Plan Deposit Instructions" indicating the diversion by PFA of 80% - 100%

of the funds entrusted to SunTrust by investors. With each "Pension Plan Deposit Instruction"

received from PFA, SunTrust acquired direct knowledge that investor funds were not being

invested or handled in accordance with investor instructions. SunTrust failed to disclose these

material facts to Plaintiff Cesar Aguirre Urbaneja and those other members of the Class who


61. In November 24, 1999, a SunTrust account officer (believed to be Odalys de Oso)

acknowledged in a handwritten memorandum that the Master Custodial Agreement executed

by PFA and SunTrust was inconsistent with the separate Trust Agreements SunTrust had

executed with individual PFA investors . The Master Custodial Agreement referred to PFA as

the grantor of deposited funds , whereas the Trust Agreements were entered into with the

individual investors/grantors . This fundamental inconsistency , which allowed PFA to exert

direct control and divert investor funds on deposit at SunTrust , was known to SunTrust;

however , the account officer memorialized that she was told by senior SunTrust officer, Oscar

Surfs , "do not worry about this now." SunTrust failed to disclose this material fact to Plaintiff

Cesar Aguirre Urbaneja and those other members of the Class who agreed to have SunTrust

serve as trustee of their funds.

62. The same November 24, 1999 SunTrust memorandum directly questioned

whether the Trust Agreements signed by the individual PFA investors should disclose the fact

that investor funds were being deposited in an account controlled by and titled in PFA ' s name.

Again , SunTrust senior officer Oscar Suris instructed that this fact not be disclosed to

individual investors . In accordance with Surfs ' instruction , SunTrust failed to disclose this

-24-


material fact to Plaintiff Cesar Aguirre Urbaneja and those other members of the Class who


63. Finally the November 24, 1999 memorandum reveals (1) that SunTrust knew that

PFA investors were being charged undisclosed bank fees, even though PFA was supposed to

be paying them, and (2) that SunTrust was forwarding to PFA, for further instructions, investor

communications and instructions directed to SunTrust as trustee pursuant to the terms of the

individual Trust Agreements. SunTrust failed to disclose these material facts to Plaintiff Cesar

Aguirre Urbaneja and those other members of the Class who agreed to have SunTrust serve as

trustee of their funds.

64. Throughout its tenure as trustee bank, SunTrust continued to commingle investor

funds, title them in PFA's name and allow PFA to divert substantial amounts of investor funds.

SunTrust failed to disclose these material facts to Plaintiff Cesar Aguirre Urbaneja and those

other members of the Class who agreed to have SunTrust serve as trustee of their funds.

65. In April 2000, SunTrust's lawyers, upon review of PFA's revised offering and

promotional materials, advised Ary Velasco that "the up front penalty on revocation" being

charged to PFA investors were "steep." As a result of this communication, SunTrust knew, or

was severely reckless in not knowing, that the high surrender and penalty fees being charged

by PFA were being used to disguise the diversion of investor funds to non-investment

purposes. SunTrust failed to disclose this material fact to Plaintiff Cesar Aguirre Urbaneja and

those other members of the Class who agreed to have SunTrust serve as trustee of their funds.

66. Throughout the period from 1999 through 2001, SunTrust issued numerous

certificates and statements directly to investors under the SunTrust logo and seal, and signed by

SunTrust bank officer Odalys del Oso, which knowingly misrepresented the balances held by

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t

Suntrust "in Trust" for the investors by omitting to inform them of the fact that up to 90% of

their principal investment had been diverted to non-investment purposes. Plaintiff Cesar

Aguirre Urbaneja, and those other members of the Class who agreed to have SunTrust serve as

trustee of their funds, each received misleading and false investment certificates and account

statements.

67. SunTrust also sent false and misleading information to investors vouching for the

character of PFA's insiders and the safety of PFA's investments. For example, on or about

May 1, 2000, SunTrust, through Ary C. Velasco, authored a letter addressed: "To whom it may

concern." The letter was written on Sun Trust's letter head, contained the SunTrust logo and a

return address for SunTrust Bank, Miami, N.A. at SunTrust's Brickell Avenue, Miami offices.

SunTrust knew the letter would be and was distributed to investors who entrusted their funds to

SunTrust as trustee and to other prospective investors.

68. In the letter , SunTrust touted its relationship with PFA, vouched for the integrity

and soundness of PFA's business as having a "solid foundation for long term investors" and

invited investors to call SunTrust should they have any questions or concerns about PFA:

Today, as Trustee for the Personal Retirement Trust and theEducational Trust, SunTrust enjoys an excellent relationship withPension Fund of America, a relationship that continues to grow. Asone of the world's largest and strongest financial institutions,SunTrust provides a solid foundation for long-term investorsseeking to prepare for their retirement or assure the education oftheir children through the plans provided by Pension Fund ofAmerica.

We are proud of our association with Pension Fund of America

and are honored to be trustee for your personal retirement and/or

educational trusts. Please feel free to contact us with any questions

or concerns.

(emphasis supplied).

-26-


In the letter, SunTrust failed to disclose all the material facts, outlined above, that it knew

regarding PFA operations and the improper handling of investor funds.

69. On the morning of May 2, 2000 -- the very next day after authorizing the glowing

letter of recommendation on behalf of PFA -- SunTrust's Ary Velasco met with Cornide and de

la Riva to review "concerns" SunTrust had with the investment agreement being sent to PFA

investors who selected the College Education Trust. PFA revised the document to attempt to

address SunTrust's "concerns"; yet Velasco's handwritten notes reflect that he knew the

investment agreement was "confusing" in parts and that SunTrust had lingering concerns

regarding the revocation penalties being charged to PFA investors. None of these concerns

were disclosed to Plaintiff Cesar Aguirre Urbaneja and those other members of the Class who

agreed to have SunTrust serve as trustee of their funds, or to prospective investors who had

received SunTrust's May 2000 letter of recommendation.

70. To make matters worse, in June 2000, Mr. Velasco personally traveled to Aruba -

at the request of PFA - to make a personal presentation and sales pitch at a PFA sales meeting.

At this event, Velasco again reiterated SunTrust's complete confidence in PFA, assured the

sales force present that investor funds were secured by SunTrust's direct involvement as trustee

bank, and failed to disclose any of the material facts then known to SunTrust regarding PFA's

operations and improper handling of investor funds. Mr. Velasco knew his remarks and

personal testimony, as an agent of SunTrust, regarding PFA's operations would be widely

disseminated to investors. SunTrust was a sponsor of the PFA Aruba Conference and even

paid for the "Welcome One Hour Cocktail and Dinner Reception."

-27-


I

71. In 2000 and 2001, SunTrust, in letters authorized by Ary Velasco, continued to

vouch for PFA's business affairs and SunTrust ' s role as trustee in securing their investments,

knowing these failed to disclose material facts, outlined above, known to SunTrust regarding

PFA operations and improper handling of investor funds.

72. In the Fall of 2001, SunTrust filed suit against PFA in the Circuit Court of the

Eleventh Judicial Circuit in and For Miami Dade County, Florida, Case No. 01-20718 CA 08.

In its Complaint, SunTrust alleged, but never disclosed to investors, that "[f]rom almost the

beginning, SunTrust has advised PFA that it believed various provisions of the Agreement

and/or law were not being adhered to [by PFA]." SunTrust further stated in its lawsuit that it

had not obtained required sub-accountings for investor funds from February 2000 through June

2000, including a sub -accounting it had sought from PFA for April 18, 2000 - twelve days

before SunTrust authored the May 1, 2000, letter touting the strength of its relationship with

PFA and its role as Trustee over the investors ' funds.

73. SunTrust also claimed in its lawsuit, but never disclosed to investors, that "PFA

lacked a sophisticated accounting system which it had represented to SunTrust it possessed. It

was additionally apparent that this accounting system was not appropriate for the requirements

of proper accounting of the individual trusts, including the capability of issuing annual

statements and Fiduciary Tax Returns (1041)."

74. SunTrust also revealed in its lawsuit, but never disclosed to investors , that "annual

statements to the beneficiaries of each individual trust have not been provided in form and

content consistent with Florida Statutes."

75. SunTrust decided to exit the relationship with PFA as early as September 7, 2000,

and requested that a successor trustee be appointed. At no time, however, did SunTrust

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disclose to investors that PFA was in violation of its agreement or the law, PFA's accounting

system was not appropriate for the requirements of proper accounting of the individual trusts,

that investor sub-accountings had not been provided or performed, that SunTrust had abdicated

its fiduciary responsibility by relying on PFA's inadequate accounting system to provide such

sub-accountings, that PFA was incapable of producing such sub-accountings, or that it believed

that PFA had misrepresented to investors SunTrust's role as Trustee. SunTrust further failed to

disclose that it had been secretly seeking to exit its relationship with PFA for well over a year.

76. Pursuant to representations made in the PFA investment contracts signed by

Plaintiff Cesar Aguirre Urbaneja and those other members of the Class who agreed to have

SunTrust serve as trustee of their funds, SunTrust was required to provide each investor with at

least 120 days written notice before resigning as Trustee. Despite this, SunTrust resigned as

Trustee in 2001 without giving Plaintiff, Cesar Aguirre Urbaneja, and those other members of

the Class who agreed to have SunTrust serve as trustee of their funds, notice of its resignation.

SunTrust further failed to disclose to Plaintiff, Cesar Aguirre Urbaneja, and those other

members of the Class who agreed to have SunTrust serve as trustee of their funds, the

illegalities, problems and deficiencies in PFA operations which SunTrust had detailed in its

lawsuit and which internal documents indicate SunTrust knew about at least as early as

November 1999.

77. Each of the foregoing omissions, taken individually and/or collectively, had

SunTrust disclosed them to Plaintiff Cesar Aguirre Urbaneja, and those other members of the

Class who agreed to have SunTrust serve as trustee of their funds, as was its duty, would have

prompted these investors not to invest, transfer, or renew their investment of retirement and

other savings "in Trust" with SunTrust.

-29-


Lehman Brothers' Role and Knowledge of the Fraud on Plaintiffs

78. Beginning on or about December 2000, Lehman Brothers began serving as co-

sponsor of the PFA investment trust and agreed to serve as a trustee of investor funds.

79. Lehman Brothers knowingly undertook a fiduciary duty, assuming responsibility

for the safe handling of investor funds consistent with investor instructions, and invited

Plaintiffs Jose Luis Zambrano and Malliya Salazar, and those other members of the Class who

agreed to have Lehman Brothers serve as trustee of their funds, to repose trust and confidence

in it. For example, in an e-mail from Lehman's Guillermo Vega to Eric Urena and other

Lehman agents dated September 25, 2001, Mr. Vega wrote "What is [PFA's] current

relationship with SunTrust and how close are we to having this relationship completely at

Lehman as original advised."

80. PFA's principals worked with Lehman Brothers to develop a Lehman Brothers-

approved document to jointly market the investment. PFA and Lehman Brothers agreed that

PFA could use Lehman Brothers' logo and name on its web site to solicit investments. Eric

Urena wrote to several other Lehman Brothers employees on December 19, 2002, recalling

"pension fund of america & Lehman on website: this was brought up previously and at that

time it was considered ok sandy & leo recall the discussion with simon amich, the manager at

the time..."

81. Further, in early 2001, Lehman Brothers sent PFA an order form for Lehman

Brothers marketing materials, logos, T-shirts, and other marketing paraphernalia.

82. With Lehman Brothers' knowledge, PFA issued "Certificates of Guarantee" for

its Liberty Plus Plan guaranteeing investors a return on their principal of 120% over a 15-year

period irrespective of market performance . The Certificate identifies Lehman Brothers as the

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custodian bank. Moreover, Defendant de la Riva stated, in his April 6, 2005, deposition in the

enforcement action brought by the SEC against PFA, that Lehman Brothers knew that PFA

was using a Lehman Brothers seal on documents and certificates sent to investors.

83. Further, with Lehman's knowledge, investment contracts sent to investors,

identifying Lehman Brothers as Custodian, stated that investors were guaranteed a minimum

payment of 120% of their principal investment after 15 years if they invested in the Liberty

Plan or 110% after 10 years if they invested in the Capital Plan.

84. For each investor who placed their funds in trust with Lehman Brothers, a

certificate was issued to the investor confirming Lehman Brothers' status as "Trustee,"

describing the investment, confirming receipt of the investment, and containing the official

Lehman Brothers seal with the notarized signature of a Lehman Brothers' "Authorized

Official" set forth at the bottom right hand corner of the certificate. Lehman Brothers

knowingly permitted PFA to issue such certificates and to use Lehman Brothers' name.

Lehman Brothers never disclosed to Plaintiffs Jose Luis Zambrano and Malliya Salazar, or

those other members of the Class who agreed to have Lehman Brothers serve as trustee of their

funds, that the certificates contained material omissions in that they listed the total principal

amount of the investor's initial investment without disclosing that up to 90% of the investor's

funds had already been diverted to non-investment purposes.

85. Further, Lehman Brothers allowed PFA to utilize its corporate name, corporate

logos, and - most importantly - its corporate reputation, in solicitation and promotional

materials, knowing that these materials would be used to induce investors to repose confidence

and trust in Lehman Brothers to insure the proper handling of investor funds. However,

Lehman Brothers never disclosed to Plaintiffs Jose Luis Zambrano and Malliya Salazar, or

-31 -



funds, that it was taking no steps to provide that security or to insure that their instructions

were being followed.

86. Lehman Brothers knew, or was severely reckless in not knowing, that it was

identified in the PFA investment contract and related solicitation and promotional materials as

securing investments in the trust . For example, the PFA investment contract and related

solicitation and promotional materials reviewed by Lehman Brothers, referred to Lehman

Brothers as "Trustee", and provided that Lehman Brothers would acquire funds and hold them

according to the investor's instructions.

87. Lehman Brothers never disclosed to Plaintiffs Jose Luis Zambrano and Malliya

Salazar, and those other members of the Class who agreed to have Lehman Brothers serve as

trustee of their funds, that it was making no effort to verify that investor funds were invested

according to their instructions. Further, Lehman never disclosed to Plaintiffs Jose Luis

Zambrano and Malliya Salazar, and those other members of the Class who agreed to have

Lehman Brothers serve as trustee of their funds, that it was receiving instructions with respect

to the funds directly and solely from PFA, was depositing investor funds in a commingled

account controlled by PFA, and had never obtained verification whether or not the instructions

pursuant to which it was disbursing investor funds were consistent with the investors'

directions. Instead, Lehman Brothers remained silent in the face of its duty to disclose these

material facts to Plaintiffs Jose Luis Zambrano and Malliya Salazar, and those other members

of the Class who agreed to have Lehman Brothers serve as trustee of their funds .

88. With respect to sub-accountings for investor funds, Lehman Brothers knew, or

was severely reckless in not knowing, that SunTrust had alleged in its lawsuit that PFA was

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C

operating in violation of the law, that PFA's accounting system was woefully inadequate and

that PFA was incapable of producing the very sub-accountings required to fulfill its

responsibilities to investors. Lehman Brothers never disclosed to Plaintiffs Jose Luis Zambrano

and Malliya Salazar, and those other members of the Class who agreed to have Lehman

Brothers serve as trustee of their funds, that: (a) PFA's accounting system was wholly

inadequate to perform such a task ; and, (b) PFA was incapable of producing accurate investor

sub-accountings or performing other tasks required by law.

89. Lehman also knew, but failed to disclose to Plaintiffs Jose Luis Zambrano and

Malliya Salazar, and those other members of the Class who agreed to have Lehman Brothers

serve as trustee of their funds, that PFA was not providing investors with insurance as stated in

the investment contract and solicitation materials. The PFA investment contract identifying

Lehman Brothers as "Trustee Bank" contained an "Insurance Application" form. The summary

section of the investment contract provides in relevant part: "This section is the insurance

policy application. Please fill out this section for all participants that are choosing an annual

plan with insurance coverage . The trustee bank is the owner & beneficiary of the policy so you

must mark (section 3.2) which trustee bank will be used for the client's plan." (emphasis

supplied)

90. Lehman Brothers reviewed the PFA investment contract provided to investors

and was fully aware of the representations being made therein. Notwithstanding Lehman

Brothers' knowledge that the PFA trusts were to include an insurance component for the

benefit of the investors, and notwithstanding Lehman Brothers' knowledge that the investment

contract provided that Lehman Brothers would be the "owner & beneficiary of the policy,"

Lehman Brothers never made any transfers from the PFA accounts directly to any insurance

-33-


companies, and never verified that funds distributed at PFA' s direction were being used to

purchase insurance for the benefit of investors. Moreover, Lehman Brothers never disclosed

these facts to Plaintiffs Jose Luis Zambrano and Malliya Salazar, and those other members of

the Class who agreed to have Lehman Brothers serve as trustee of their funds.

91. On January 22, 2002, Lehman Brothers representatives Leo Roche and Eric Urena

(the Lehman Brothers employees responsible for the PFA account) met with Defendants

Cornide and De La Riva and with PFA' s largest investor, Instituto de Prevision Militar

Inverma ("1PM"), to encourage IPM's continued investment with PFA and to directly represent

to 1PM Lehman Brothers' promise of the safe handling of their funds. Lehman Brothers knew,

or was severely reckless in not knowing, that its representations to IPM, and IPM's continuing

sizable investment with PFA, would be used, and were used, to solicit additional investors for

PFA's investment trusts.

92. In an email dated January 29, 2002, Lehman Brothers Administrative Manager

Sandra Baez wrote to Eric Urena and Leo Roche asking for "evidence that authorize Pension

Fund Of America to engage in the following- 3rd party deposits -Margin in a pension account -

option trading in a pension account -owner account trading patterns." Were PFA engaged in

these activities, it would have been inconsistent with the investment trust offered to investors,

and a material deviation from the terms of the PFA investment contracts. Lehman Brothers

never disclosed to Plaintiffs Jose Luis Zambrano and Malliya Salazar, and those other

members of the Class who agreed to have Lehman Brothers serve as trustee of their funds, that

PFA was engaged in these unauthorized activities.

93. Prompted by the January 29, 2002, inquiry, Lehman's Sandra Marino wrote to

Lehman's Simon Amich on February 1, 2002: "customers [investors] makes checks payable to

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Case 1:05-cv-21169-KMM Document 242 Entered on FLSD Docket 05/23/2006 Page 35 of 71 qE( i

Lehman Brothers for the benefit of Pension Fund of America rather than Pension Fund of

America because ofprevious reputations of other insurance companies not paying the policies

and keeping the money that belonged to the clients." (emphasis supplied). Lehman Brothers

clearly knew investors were making their investment checks payable directly to Lehman

Brothers (as opposed to PFA) for the express purpose of having Lehman Brothers prevent

abuse by PFA and insure the safekeeping of their funds . Despite its knowledge that investors

had reposed their trust in it, and despite its undertakings on the investors' behalves, Lehman

Brothers knowingly structured PFA's accounts in a way that permitted PFA's insiders

unfettered control over the investors' funds, permitting the very abuses investors' were relying

upon Lehman Brothers to prevent, and providing investors none of the promised safeguards.

Lehman Brothers never disclosed to Plaintiffs Jose Luis Zambrano and Malliya Salazar, and


funds, that their funds were exposed to PFA insiders' unfettered control, or that the abuses

investors ' had feared based on "previous reputations of other insurance companies not paying

the policies and keeping the money that belonged to the clients," were in fact occurring.

94. On April 11, 2002, Lehman Brothers' Eric Urena wrote to Defendant Cornide that

"telecom equipment & telecom svcs are killing us!! Worldcom is now a penny stock; quest is

close to becoming one... WORLDCOM PREFERRED STOCK IS YEILDING 15%...

SCARY!!! The Bonds are in Double digits .... as of today ' s close if all the stocks where here at

expiration you'd be down $873 ...yes we've gone from + $40,000 to -$873 ...." Lehman

Brothers knew, but never disclosed to Plaintiffs Jose Luis Zambrano and Malliya Salazar, and


funds, that their funds were not being invested in mutual funds in accordance with their

-35-


instructions, but instead that PFA was engaged in unauthorized and highly speculative trading

activity.

95. Lehman Brothers knew, but never disclosed to Plaintiffs Jose Luis Zambrano and


serve as trustee of their funds, that 1PM had sued PFA in November 2002 for multiple acts of

fraud and malfeasance . By Court order dated February 10, 2003, Lehman Brothers was

required to return all of IPM' s funds held in PFA-related accounts.

96. Further, Lehman Brothers failed to disclose to Plaintiffs Jose Luis Zambrano and


serve as trustee of their funds, that on February 28, 2003, a group of fourteen (14) PFA

investors filed a lawsuit in Miami Dade Circuit Court against PFA, SunTrust and Lehman

Brothers , alleging that the Trustee banks had breached their fiduciary duties , had resigned

without giving the investors proper advance notice, and that monies had been improperly

transferred from the Trustee Bank accounts to PFA.


Lehman Brothers disclosed them Plaintiffs Jose Luis Zambrano and Malliya Salazar, and those

other members of the Class who agreed to have Lehman Brothers serve as trustee of their

funds, as was its duty, would have prompted these investors not to invest their retirement and

other savings "in Trust" with Lehman Brothers.

-36-


Merrill Lynch's Role and Knowledge of the Fraud on Plaintiffs

98. Sometime in the first half of 2001 , Merrill Lynch agreed to serve as an additional

co-sponsor of the PFA investment trusts and agreed to serve as a custodian of investor funds.

99. In agreeing to undertake these roles , Merrill Lynch knew that it would be held out

to PFA investors as the custodian of investor funds and the vehicle for insuring the proper

handling of investor funds . Merrill Lynch allowed its corporate name, corporate logos and -

most importantly - its corporate reputation to be utilized in PFA's investment contract and

related solicitation and promotional materials. Indeed, Defendant de la Riva stated, during his

April 6, 2005, deposition in the enforcement action brought by the SEC against PFA, that

Merrill Lynch knew that PFA was using Merrill Lynch' s name on certificates and other

documents sent to investors because this practice was presented to Merrill Lynch by PFA.

Merrill Lynch knew these actions would be used to induce investors to repose trust and

confidence in Merrill Lynch to insure the proper handling of investor funds. However, Merrill

Lynch never disclosed to Plaintiffs , Julio Ledesna and Malliva Salazar, and those other

members of the Class who agreed to have Merrill Lynch serve as custodian of their funds, that

Merrill Lynch had no system in place to insure that investors who designated Merrill Lynch as

their custodian bank actually had their funds deposited at Merrill Lynch.

100. In addition, Merrill Lynch personnel personally met or corresponded with the two

largest PFA investors , the Instituto Guatemalteco de Seguridad Social ("IGSS") and the

Instituto de Prevision Militar Inverma ("IMP"), to encourage their investment and to directly

represent to them Merrill's promise of proper handling of PFA investor funds. As detailed

below, these two investors ended up entrusting nearly Sixty-Eight Million Dollars

($68,000,000.00 ) to Merrill Lynch and PFA. Merrill knew, or was severely reckless in not

-37-


knowing, that Merrill' s representations to 1PM and IGSS, and their resulting sizeable

investments , also would be used and were used to solicit other PFA investors

101. In solicitation and promotional materials distributed to investors, with Merrill

Lynch's logo embossed across the top, investors were promised "100% guarantee of capital by

Merrill Lynch", with "Guaranteed Return of 121.6%" of invested capital , all of which was

"Guaranteed by bonds issued by the Government of the United States of America." The same

materials touted the PFA trusts as having the "backing of the SIPC," inducing investors to

believe the trusts were regulated by the U. S. government and insured through the Securities

Investors Protection Corporation. Other solicitation materials contained essentially the same

representations but promised higher "guaranteed returns" totaling "123.5%" or "125%" of

invested principal. Merrill Lynch knew, or was severely reckless in not knowing, and did not

disclose to Plaintiffs Julio Ledesna and Malliya Salazar, and those other members of the Class

who agreed to have Merrill Lynch serve as custodian of their funds, that the solicitation

materials provided to PFA investors falsely represented both the "backing of the SIPC" and

described the PFA investment with Merrill Lynch as "guaranteed by Merrill Lynch." Instead,

Merrill Lynch remained silent despite its duty to inform investors that these representations

were false.

102. In the summer of 2001, IPM was jointly solicited by PFA and Merrill Lynch to

open a "retirement trust account" at Merrill Lynch, funded by pension funds belonging to

members of the Guatemalan Armed Forces and their families. During meetings in Miami,

Merrill Lynch representatives told IPM that its funds would be kept in segregated accounts.

Merrill Lynch knew, or was severely reckless in not knowing , that this undertaking of creating

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separate accounts in the name( s) of each investor in a PFA trust would be disseminated to other

investors by PFA.

103. At the same time these assurances were being given uniformly to prospective

investors, Merrill Lynch in October 2001 opened accounts titled in PFA's name, over which

PFA exercised unfettered and sole control and into which investor funds were deposited.

Merrill Lynch failed to disclose to Plaintiffs Julio Ledesna and Malliva Salazar, and those other

members of the class who agreed to have Merrill Lynch serve as custodian of their funds, its

failure to establish segregated accounts in each investor's name or the decision to give PFA

unfettered control over investor funds, thereby facilitating PFA's insider's diversion of PFA

trust funds to non-investment purposes.

104. In October 2001, 1PM directly transferred to Merrill Lynch nearly eight million

dollars ($8,000,000.00).

105. Within two months of the opening of the IPM Account, the looting of the funds

entrusted to Merrill Lynch began. Merrill Lynch enabled Cornide and de la Riva to transfer in

excess of three million dollars out of the 1PM Account. Specifically, on or about November

15, 2001, PFA transferred $1,399,583.12 to a savings account at Ocean Bank. Fifteen days

later, PFA transferred $1,080,000.00 to another Merrill Lynch account numbered 738-07T64,

one of several accounts titled in the name of PFA at Merrill Lynch. Only five days later, an

additional $944,461.00 was transferred out of the IPM Account to yet another PFA account at

Merrill Lynch numbered 738-07T72, before being wired to a SunTrust Bank Account on

December 14, 2001.

106. Merrill Lynch knew of the diversion of investor funds as it occurred. For

example, Three Million Dollars ($3,000,000.00), or about 50% of the pension funds initially

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deposited in the IPM Account, were withdrawn or transferred out of the IPM Account during

the first two months of Merrill Lynch's receipt of the pension funds, and Merrill Lynch

apparently did not even question it. In addition , Merrill Lynch Assistant Vice President,

Eduardo Coloma, the Merrill Lynch financial advisor who managed the IPM Account,

acknowledged under oath that he communicated with Cornide and de la Riva, PFA's

principals, on a monthly basis to discuss the activity in the 1PM account. Merrill Lynch never

disclosed to Plaintiffs Julio Ledesna and Malliya Salazar, and those other members of the Class

who agreed to have Merrill Lynch serve as custodian of their funds, the diversion of investor

funds by Cornide and de ]a Riva.

107. A review of the activity in the IPM Account at Merrill Lynch reveals that

Cornide and de la Riva were diverting money for PFA's benefit and their own personal use.

The transfers to PFA substantially increased Pension Fund of America's net worth as of

October 2001. In comparison with the company's net worth at the time it began transacting

business with Merrill Lynch, PFA's net worth increased from one to ten million dollars, in the

time frame of eleven months. This increased net worth was held out to investors, including

Plaintiffs Julio Ledesna and Malliva Salazar and the other investors who designated Merrill

Lynch on their custodian bank as a sign of the financial stability of PFA. Merrill Lynch

Assistant Vice President Eduardo Coloma reviewed PFA's net worth statements in the Fall of

2001 and was aware of the artificial increase in PFA's net worth. Merrill Lynch knew, or was

severely recklessness in not knowing, and did not disclose to Plaintiffs Julio Ledesna and

Malliya Salazar, or those other members of the Class who agreed to have Merrill Lynch serve

as custodian of their funds, that this artificial increase in PFA's net worth misrepresented the

financial stability and strength ofPFA

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108. Merrill Lynch also sent false and misleading information to investors and others

vouching for PFA's business practices and the character of PFA 's insiders . For example, on or

about December 4, 2001, Merrill Lynch Assistant Vice President, Eduardo Coloma, authored a

letter addressed to Ms. Jennifer Lloyd, Corporate Services Administrator , Offshore Company

Services Limited. The letter was written on Merrill Lynch letterhead, contained the Merrill

Lynch logo and a return address for Merrill Lynch's Coral Gables offices. Merrill Lynch knew

the letter would be and was widely distributed to investors who entrusted their funds to Merrill

Lynch and other prospective investors.

109. In the letter, Coloma, acting in the course and scope of his employment with

Merrill Lynch, vouched for the integrity of PFA' s business , recommended PFA and its insiders

"with complete confidence" and invited any inquiries regarding PFA or PFA's principal, Luis

Cornide. The letter stated in relevant part:

This letter is to inform you that I have known Mr. Luis Comide for over ten years.In addition, I have been doing business with Mr. Luis Cornide for one year. I ampleased to report that Mr. Comide and his company have conducted all businessin a highly satisfactory manner. Mr. Cornide has always been most helpful inproviding information and accurate advice on both a business level and personallevel.

He has always conducted himself in a very cordial fashion. Mr. Cornide is anindividual that I can recommend with complete confidence. I know he willmeasure up to your expectations. His enthusiastic hard work is reflected in hiscompany's success.

This letter was notarized and sworn to by Coloma. In its "letter of recommendation", Merrill

Lynch failed to disclose all the material facts , outlined above , then known to it regarding PFA's

operation, the structure of PFA's accounts, and the improper handling of investor fund, including

the diversion of investor funds for non-investment purposes.

-41 -


110. Armed with Coloma's glowing and misleading "letter of recommendation",

Merrill Lynch and PFA continued to jointly solicit additional investors.

111. Next, PFA and Merrill Lynch jointly solicited IGSS. Despite knowing of the

active diversion by Cornide and de la Riva of IPM funds entrusted to Merrill Lynch, or in

reckless disregard of it, Merrill Lynch and PFA made the same promises to IGSS as they had

made to 1PM -- and disseminated to other investors -- regarding Merrill Lynch's role in

securing the safe handling of investor funds and the "guarantee" of investment security.

112. The first IGSS investment was made on September 19, 2002. Accompanying the

investment was a confirmatory letter to Merrill Lynch's offices on Brickell Avenue in Miami,

Florida. The letter sought, consistent with the joint solicitation materials described above,

confirmation of IGSS's investment of $5,000,000, that 100% of its capital was "guaranteed by

Merrill Lynch," with a "guaranteed return of 120% over five years ," and further "guaranteed

by bonds issued by the Government of the United States of America."

113. Contrary to the representations made to IGSS, on the very next day, September

20, 2002, Merrill Lynch Assistant Vice President , Eduardo Coloma opened a new account in

PFA's name using IGSS' funds, and giving Cornide and de la Riva unfettered control over the

funds . A contemporaneous handwritten note dated September 20, 2002, proves that Merrill

Lynch knew the account had been opened in a manner inconsistent to what had been promised

and stated: "The fundamental problem is that IGSS is not the title owner of the account." In

addition , Merrill Lynch was clearly on notice of the promises of "guaranteed returns" and of

investment security "guaranteed by Merrill Lynch" when it received the initial IGSS letter, and

yet Merrill Lynch made no effort to effect these guarantees, nor did Merrill Lynch disclose -

then or later - to 1PM, IGSS or other Class members solicited to designate Merrill Lynch as

-42-


their custodian bank, including Plaintiffs Julio Ledesna and Malliva Salazar, that the

relationship with PFA had been structured to title funds in PFA's name, gave PFA unfettered

control over investor funds and that the "guarantee of returns" backed by Merrill Lynch was

non-existent.

114. Notwithstanding Merrill Lynch's direct knowledge to the contrary, IGSS was

issued certificates stating "Merrill Lynch as Custodian (member SIPC)" certifying that the full

Five Million Dollars invested by IGSS was being held in "Senior Unsecured Bonds" and in a

"Merrill Lynch Principal Protected Guaranteed Product."

115. In the late Fall of 2002, IPM became aware of the diversion by Cornide and de la

Riva of the funds entrusted to Merrill Lynch . On November 26, 2002, IPM filed suit against

PFA and its insiders in Miami-Dade County Circuit Court, Case No 02-29737 CA 27. The

lawsuit asserted claims against PFA and its insiders for conversion , unjust enrichment,

constructive trust , breach of contract , fraud , breach of fiduciary duty, fraud in the inducement,

civil conspiracy, violations of Florida Statutes § 517.12 and §517.301, and sought an

accounting and temporary injunction . IPM's lawsuit outlined PFA's fraudulent conduct and

the looting of investor accounts . Merrill Lynch knew, or was severely reckless in not knowing,

of the lawsuit shortly after it was filed, yet did not disclose this lawsuit to investors or

withdraw its earlier letters of recommendation authored by Coloma. Merrill Lynch' s failure to

disclose the filing of the IPM lawsuit was a material omission, in violation of its duty to IGSS

and the other Class members who Merrill Lynch knew were being solicited to designate

Merrill Lynch as their custodian bank, including Plaintiffs Julio Ledesna and Malliva Salazar.

116. Shortly after the filing of the IPM lawsuit, Merrill Lynch received additional

funds from IGSS. On January 7, 2003, IGSS entrusted an additional $9,000,000 to Merrill

- 43 -


ê

Lynch. Again, IGSS sent a confirmatory letter to Merrill Lynch's offices on Brickell Avenue

in Miami, Florida. Again, the letter sought Merrill Lynch's confirmation of IGSS's investment

at "an annual rate of return of 4.32%," for a "term of 1,826 days," "payment date of January 7,

2008," and "Guaranteed by bonds issued by of the United States of America."

117. Thereafter, on February 5, 2003, IGSS made a third investment. IGSS sent yet

another letter to Merrill Lynch's offices on Brickell Avenue in Miami, Florida. For a third

time, IGSS "sought confirmation of IGSS's investment of $5,000,000," at an "annual rate of

return of 4.70%," for a "term of 1,825 days," "payment date of February 4, 2008," and

"Guaranteed by bonds issued by the United States of America." Internal documents confirm

that these funds were transferred directly to Merrill Lynch's account at Mellon Bank, Pittsburg,

PA. Similar wire transfers directly to Merrill Lynch's account were made through March

2003.

118. The looting of IGSS's funds commenced within 3 days of the IGSS initial deposit

in September 2002. Beginning on September 24, 2002, and continuing through April 2, 2003,

PFA's insiders directed Merrill Lynch take $13,600,000 of the funds entrusted to Merrill

Lunch by IGSS and wire it to accounts maintained by Cornide and de la Riva at other financial

institutions, including accounts established at Defendant SunTrust and to an account at First

Union bank in the name of Beckenham Trading Co. Through these transactions and the

others detailed above, Merrill Lynch acquired knowledge of the improper handling of investor

funds by PFA and the diversion of investor funds to non-investment purposes.

119. In addition, contrary to the "guaranteed" rates of return promised investors, as of

February 28, 2003, Merrill Lynch's internal records, showed PFA's account as having a "YTD

Return: -3.22%," far from the "guaranteed" rates of return and growth promised in the joint

-44-


solicitation materials. Moreover, PFA was experiencing significant trading losses, as Merrill

Lynch's own records reflected . Notwithstanding Merrill Lynch' s knowledge of the foregoing,

Merrill Lynch failed to advise investors of these facts, and instead permitted PFA to continue

to solicit investors with the promise of Merrill Lynch' s backing using Merrill Lynch' s name,

logo and corporate reputation.

120. On February 10, 2003, the Circuit Court for the Eleventh Judicial Circuit In and

For Miami-Dade County, Florida, entered an Order compelling the liquidation and transfer of

all funds at Merrill Lynch (and additional funds held by Lehman) that belonged to IPM. As a

result of that liquidation order, approximately $4.8 Million in funds were returned to 1PM from

accounts at Merrill Lynch. Obviously, by this date, Merrill Lynch had actual knowledge of the

liquidation order and underlying lawsuit. Merrill Lynch omitted to disclose to Plaintiffs, Julio

Ledesna or Malliva Salazar, and the other Class members who designated Merrill Lynch as

their custodian bank the facts relating to the IPM lawsuit or the circumstances which prompted

the court-ordered liquidation of IPM' s account at Merrill Lynch in early 2003.

121. Further, Merrill Lynch failed to retract or correct the false and misleading

solicitation and promotional materials and letters of recommendation approved or issued by

Merrill Lynch which Merrill Lynch knew were being used to solicit investments in PFA trusts.

Although an exhaustive review of PFA investor records is not possible at this time, the

following Plaintiffs, PFA investors and Class members were solicited to entrust their funds to

PFA and Merrill Lynch as "custodian" Bank, including: (1) Susana Kantorowicz (February 20,

2003), (2) Marta Liliana Soto Perez (March 28, 2003), (3) Sergio Enrique Moraes Ramirez

(April 3, 2003), (4) Federico Esteban Perelsztein (April 9, 2003), (5) Tal Ariel Waisbord (April

16, 2003), (6) Fausto B. Malo Heredia (April 16, 2003), (7) Adolfo Luis Reisman (April 30,

-45-


2003), (8) Eduardo Antonio Aparicio (April 30, 2003), (9) Pablo Passalacqua Quiroz (May 15,

2003), (10)Luis Valerio Chuquimia Villalobos (Mary 22, 2003), (11) Plaintiff, Julio A.

Ledesna (May 28, 2003), (12) Ezra Victor Saiegh (May 28, 2003), (13) Andrea Maria Valle De

Jurgensen (June 11, 2003), (14) Marcela Susana Cordova De Flores (June 25, 2003), (15)

Maria Marcela Soligno (July 9, 2003), (16) Eduardo Prudencio Recacoechea (July 9, 2003),

(17) Jorge Augusto Valdivia Antisolis (July 9, 2003), (18) Horacio J. Minuto (July 16, 2003),

(19) Anahi Ivonne Andrade Pinto (July 17, 2003), (20) Noel Edmundo Yriberry Paz Soldan

(July 30, 2003), (21) Plaintiff, Fernando Mauricio Quevedo Araoz (August 6, 2003), (22)

Ricardo Luis Roza (August 20, 2003), (23) Roberto Iserte (August 20, 2003), (24) Jose Orias

Arredondo (August 27, 2003), (25) Carlos Eduardo Brockmann Rojas (September 10, 2003),

(26) Ramiro Ernest Jordan Yanez (October 15, 2003), (27) Natalia Alexia Perelsztein (April

30, 2003) and Juan A. Murillo del Castillo (July 9, 2003). Internal PFA records dating back

to December 11, 2002 show numerous other individual PFA investors who were solicited to

invest, and did invest, believing their funds were being entrusted to Merrill Lynch.


Merrill Lynch disclosed them to Plaintiffs Julio Ledesna and Malliya Salazar, or those other

members of the Class who agreed to have Merrill Lynch serve as custodian of their funds,

would have prompted investors not to invest, transfer, or renew their investment of retirement

and other savings "in Trust" with Merrill Lynch.

Raymond James ' and OIG's Role and Knowledge of the Fraud on Plaintiffs

123. Following SunTrust's termination of its relationship with PFA, Raymond James

and OIG, as Raymond James' exclusive agent in Miami, agreed to serve as a co-sponsor of the

PFA trusts and agreed to serve as trustee of investor funds.

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124. The Guide To Plan Provisions (the "Guide"), which was provided to all investors

who designated Raymond James as their trustee bank, contains the purported terms under

which each investor would be investing through PFA. In the Guide, which Raymond James

reviewed prior to agreeing to accept investor funds, Raymond James is identified as follows:

"Trustee Bank refers to Raymond James Financial, which shall serve as trustee for the

Investment Component of the plan and to make investments during the lifetime of the plan."

The Guide further states that, "Investment Component refers to under this agreement through

the Trustee Bank that portion of the plan contribution that is used to invest by the Participant

[investor]." The Guide represents that, "You are being provided with both an insurance

component and investment component. The insurance component includes coverage in case of

death, total or permanent disability, and accidental death. This protection covers the annual

investment for the first fifteen years.-The investment component includes the purchase of

mutual funds will be transacted and administrated by the trustee bank."

125. By agreeing to serve as trustee of the PFA investment contract and by allowing

PFA to utilize its corporate name, corporate logos, and - most importantly - its corporate

reputation, in solicitation and promotional materials, Raymond James and OIG induced

investors to repose confidence and trust in Raymond James to insure the proper handling of

investor funds. However, Raymond James never disclosed to Plaintiffs Enrique Loeser Bravo

and Dr. Martha Landivar Gantier, or those other members of the Class who agreed to have

Raymond James serve as trustee of their funds, that it was taking no steps to provide that

security, to insure that their instructions were being followed, or even to insure that investors

who designated Raymond James as their "trustee" had their funds actually deposited with

Raymond James.

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126. The PFA investment contract, signed by Plaintiffs Enrique Loeser Bravo and Dr.

Martha Landivar Gantier, and those other members of the Class who agreed to have Raymond

James serve as trustee of their funds, directed investors that their investments were to be made

"directly with RAYMOND JAMES" and directed investors to pay by check, bank transfer,

credit card, insurance company transfer or "other" method of payment, inducing Plaintiffs to

believe their funds would be directly handled by Raymond James.

127. Raymond James never disclosed to Plaintiffs Enrique Loeser Bravo and Dr.

Martha Landivar Gantier, or those other members of the Class who agreed to have Raymond

James serve as trustee of their funds, that PFA investor funds were being controlled by PFA,

commingled and deposited into an account titled in PFA'S name, and under the unfettered

control, of PFA'S insiders.

128. In addition, Raymond James and OIG received checks made out to other

Financial Institution Defendants and allowed PFA to endorse the checks and deposit them into

the commingled PFA account. Accordingly, Raymond James and OIG knew, or were severely

reckless in not knowing, that PFA and Raymond James were not handling investor funds in

accordance with investor designation of trustee banks. Raymond James and OIG never

disclosed this material fact to Plaintiffs, Enrique Loeser Bravo and Dr. Martha Landivar

Gantier, and those other Class members who designated Raymond James as trustee of their

funds.

129. Before agreeing to accept PFA investor funds, Raymond James, through its Vice

President Jack Maynard, directed OIG's Oliva on April 9, 2003, that they needed "firm

information on just who these folks are, where they are located, and how they are marketing

their product." Mr. Maynard also advised that "we will need to see whatever proposed

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Case 1:05-cv-21169-KMM Document 242 Entered on FLSD DgCket 05/23/2006 Page 49 of 71 q

agreement [PFA has]-as that agreement will give us an understanding of exactly what our

duties and responsibilities would be." Raymond James undertook this due diligence because it

understood that it had a duty to do so as trustee for Plaintiffs Enrique Loeser Bravo and Dr.

Martha Landivar Gantier, and those other members of the Class who agreed to have Raymond

James serve as trustee of their funds.

130. Notwithstanding this duty to Plaintiffs and the Class, Raymond James failed to

disclose material facts it knew or should have known, regarding PFA'S business affairs. For

example, two years before Raymond James agreed to act as Trustee Bank, Raymond James'

predecessor Trustee, SunTrust, had instituted suit against PFA in the Circuit Court of the

Eleventh Judicial Circuit in and For Miami Dade County, Florida, Case No. 01-20718 CA 08.

As previously alleged herein, SunTrust accused PFA of violating Florida law and operating in

breach of its agreements. The lawsuit stated "[f]rom almost the beginning, SunTrust has

advised PFA that it believed various provisions of the Agreement and/or law were not being

adhered to [by PFA]." SunTrust further stated in its lawsuit that it had not obtained required

sub-accountings for investor funds, that PFA's accounting system was inadequate for the

business it was seeking to operate and further accused PFA of serious misconduct in the

management and operation of its business.

131. Further, on November 26, 2002, one of PFA's largest investors, IPM, filed suit

against PFA and Defendants Cornide and de La Riva in Miami Dade County Circuit Court,

Case No 02-29737 CA 27 . The lawsuit asserted claims against PFA and its insiders for

conversion , unjust enrichment , temporary injunction , constructive trust, breach of contract,

fraud , breach of fiduciary duty, fraud in the inducement , civil conspiracy , violations of Florida

-49-


Statutes § 517.12 and §517.301, stemming from PFA's fraudulent conduct and management of

the investor accounts.

132. Finally, on February 28, 2003, a group of fourteen PFA investors filed a lawsuit

in Miami-Dade Circuit Court against PFA, SunTrust and Lehman, alleging that the trustee

banks had breached their fiduciary duties, had resigned their role without providing investors

with the required advance, written notice and that investor funds had been improperly

transferred from the trustee bank accounts.

133. Raymond James, directly or through its agent OIG, knew or was reckless in not

knowing about the public lawsuits filed against PFA. Nonetheless, Raymond James never

disclosed to Plaintiffs Enrique Loeser Bravo and Dr. Martha Landivar Gantier, or those other

members of the Class who agreed to have Raymond James serve as trustee and custodian of

their funds, the existence of these lawsuits, the fact that a predecessor Trustee Bank had

accused PFA of serious misconduct, that a large investor had accused PFA of widespread

fraud, that an investor had obtained a court order requiring predecessor Trustees/Custodians

(Merrill Lynch and Lehman Brothers) to return millions of dollars of investor money, and that

a group of fourteen investors had sued SunTrust, Lehman and PFA alleging breach of fiduciary

duty and other serious misconduct against PFA, SunTrust and Lehman.

134. On April 6, 2004 -- over a year after Raymond James had opened its account

with PFA Assurance -- Alfredo Oliva, in his capacity as agent for Raymond James, wrote

about Raymond James' failure to have the necessary information about its PFA accounts in

order to comply with the U.S.A. Patriot Act. Oliva wrote, in part:

Since we accept third party check deposits as well as wires, I needto have a breakdown of who is writing the checks/wire and for whothe beneficial owner is. In other words if the check is made out by

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Case 1:05-cv-21169-KMM Document 242 Entered on FLSD Djket 05/23/2006

an agent or agency, I need to know for whose benefit thatcheck/plan is for....

You carry an operating account at RJ that accepts 3ra partyjournals, as well. As a result for every check written by the firmfrom this account please provide a breakdown on what representsdistributions and to which clients, as well as what is administrative.

Please understand that this is not something required by us or thefirm, rather by legislation and the environment in which we liveand transact business.

Page 51 of 71 q

Notwithstanding this knowledge, Raymond James never disclosed to Plaintiffs Enrique Loeser

Bravo and Dr. Martha Landivar Gantier, or those other members of the lass who agreed to have

Raymond James serve as trustee of their funds, that it had not bothered to obtain, for well over a

year, information concerning the sources of funds being received into its "trust" account and,

even more critically, an accurate breakdown identifying the millions in disbursements which

PFA had diverted from the Raymond James custodial account. Further, Raymond James never

disclosed to Plaintiffs Enrique Loeser Bravo and Dr. Martha Landivar Gantier, and those other

member so the Class who agreed to have Raymond James serve as trustee of their funds, that its

PFA accounts were not in compliance with federal law.

135. Each of the foregoing omissions, taken by themselves and/or collectively, had

Raymond James timely disclosed them to Plaintiffs Enrique Loeser Bravo and Dr. Martha

Landivar Gantier, or those other members of the Class who agreed to have Raymond James

serve as trustee of their funds, would have prompted those investors not to invest, transfer or

renew their investment of retirement and other savings "in Trust" with Raymond James.

HSBC's Role and Knowledge of the Fraud on Plaintiffs

136. Following secretive resignations by SunTrust, Lehman Brothers, Merrill Lynch

and Raymond James, and the lawsuits instituted by Defendant SunTrust, by IPM, and by

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Case 1:05-cv-21169-KMM Document 242 Entered on FLSD Djket 05/23/2006 Page 52 of 71 q

fourteen (14) investors, HSBC undertook in 2003 to serve as the trustee and fiduciary of

investor funds. HSBC agreed to ensure the safe handling of investor funds.

137. When HSBC began its involvement with PFA it solicited all of PFA's existing

investors, by letter dated October 27, 2003, to transfer their money to HSBC, and sent Plaintiff

Fabio Eduardo Moreno Charme, and those other members of the Class who agreed to have

HSBC serve as trustee of their funds, a version of the Guide to Plan Provisions in an effort to

maximize the amount of funds under management and, in turn, maximize fees.

138. From the beginning, HSBC sought to receive "first year revenues from all new

monies coming into the program...." HSBC knew that its role as co-sponsor and trustee bank

was essential to induce investors to place new investments in the PFA trusts. As HSBC's

Senior Vice President Joseph Brennan described the relationship in an internal memo dated

July 29, 2003: "the [investor] has the option of renewing or not renewing annually, and the

option of renewing with us or with Lehman, AG Edwards, or Merrill Lynch. Our continued

involvement in the relationship with PFA is going to be essential to renewals in bulk taking

place with HSBC" (emphasis supplied) The "renewals' referred to by HSBC relate to the

Liberty Plan, which called for investors to to make new contributions each year. In this way,

HSBC undertook co-sponsorship of a continuing offering of investment securities to existing

and future PFA investors.

139. HSBC allowed PFA to utilize its corporate name, corporate logos, and - most

importantly - its corporate reputation, in solicitation and promotional materials, knowing that

these materials would be used to induce investors to repose confidence and trust in HSBC to

insure the proper handling of investor funds. However, HSBC never disclosed to Plaintiff

Fabio Eduardo Moreno Charme, or those other members of the Class who agreed to have

-52-


HSBC serve as trustee of their funds, that it was taking no steps to provide that security or to

insure that their instructions were being followed.

140. HSBC provided its approval to PFA to jointly market the PFA investment trusts

to investors using solicitation and promotional materials that contained material omissions,

with substantial emphasis on HSBC's role in safeguarding the investors' funds. In an email

from Joseph Brennan to PFA dated December 1, 2003, discussing PFA/HSBC solicitation and

promotional materials, Brennan instructs PFA as follows: "Back cover- "HSBC BANK USA"

should be next to the bowtie logo. "AS TURSTEE" should be 3/8 below it. We would also

prefer to see our logo against a lighter background, if white is not possible, perhaps in the part

of that page that has the header "Herramientas de Mercadeo." In the same e-mail, Brennan

further specifically approved the language "For this reason HSBC Bank USA and PFA have

created , for you, the Liberty Plan Trust." Brennan's only suggestion with respect to this

solicitation language was to change the order of PFA and HSBC. Moreover, Defendant de la

Riva stated at various points in his April 6, 2005, deposition in the enforcement action brought

by the SEC against PFA that several people at HSBC, including "a couple vice-presidents,"

were involved in developing the documentation sent to investors regarding the joint HSBC-

PFA products.

141. The solicitation and promotional materials reviewed and approved by HSBC and

widely distributed to agents and investors represented:

"THE LIBERTY TRUST PLAN IS MADE JUST FOR YOU

PFA and HSBC Bank USA have created the Liberty Plan Trust.Because with the Liberty Trust plan we have created a trust inwhich: your contributions are in dollars and made directly withHSBC Bank, you obtain higher returns compared with savingsaccounts, receive life insurance benefits, and have the option of

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making your contributions in a single annual payment or bymonthly payments using your credit card."

142. The same materials state : "HSBC Bank USA is the trustee bank that directly

receives your contribution into the Liberty Trust Plan and invests them in mutual funds. HSBC

Bank USA is part of one of the largest and most solid financial institutions in the world: HSBC

Group." These materials contain pictures of HSBC's headquarters and the HSBC corporate

logo. The joint solicitation materials offer "5 reasons why you should invest in the Liberty

Trust: 1 Total security, because your funds are received directly by HSBC Bank USA. 2 Total

protection, because the Liberty Trust Plan is backed by a legal trust held by the trustee. 3 Total

flexibility, because you can increase contributions in accordance with your means. 4 Total

tranquility, because from day one members are provided life insurance. 5 Total ease, because

contributions may be made in a single annual payment or, if preferred, monthly using your

credit card."

143. HSBC further represented to investors, through solicitation and promotional

materials, that it would place investor funds in an account titled in the name of the specific

investor. As HSBC recognized in an internal memo dated July 29, 2003 authored by Joseph

Brennan : "[investor] signs up for insurance policy with investment component with PFA. An

account is set up for each new client. " (emphasis supplied). In another handwritten notation

by Brennan , HSBC recognized, "Our fiduciary responsibility for sub-accounting- we cannot

delegate this fiduciary responsibility...." However, HSBC never disclosed to Plaintiff Fabio

Eduardo Moreno Charme, or those other members of the Class who agreed to have HSBC

serve as trustee of their funds, that it had not established separate sub-accounts titled in the

name of the investor . Nor did HSBC disclose to those investors that it placed investor funds in

-54-


a commingled "master account" titled in the name of PFA, and under the unfettered control of

PFA's insiders.

144. Solicitation and promotional materials jointly sponsored by PFA and HSBC

touted the "tranquility" offered to the investor by virtue of having a life insurance component

to the investment. HSBC knew, or was severely reckless in not knowing, and never disclosed

to Plaintiff Fabio Eduardo Moreno Charme, or those other members of the Class who agreed to

have HSBC serve as trustee of their funds , that HSBC never disbursed funds to acquire the

insurance component and made no effort to determine whether insurance was being purchased

by PFA for each investor.

145. HSBC knew , or was severely reckless in not knowing, that funds were being

diverted by PFA's insiders for purposes other than investment in mutual funds and insurance.

Nonetheless , HSBC never disclosed this fact to Plaintiff Fabio Eduardo Moreno Charme, or

those other members of the Class who agreed to have HSBC serve as trustee of their funds.

146. HSBC never disclosed to Plaintiff Fabio Eduardo Moreno Charme, or those other

members of the Class who agreed to have HSBC serve as trustee of their funds, that it had re-

directed a portion of the investment component of PFA's "retirement trusts" into mutual funds

of HSBC's choosing. Nor did HSBC disclose to these investors that in March 2004 it directed

various mutual fund companies, including AIM, Alliance, Franklin Templeton, and Janus, to

re-calculate their front-end fees ("loads") so as to increase the fees charged to investors. In a

memo dated March 25, 2004, HSBC's Joseph Brennan wrote, "I spoke with the client, PFA,

and they have no issues in our canceling and rebooking the trades to capture the loads." The

next day, Brennan wrote that he had contacted the four mutual funds set forth above and "[in]

all cases I indicated that we were looking at Class A shares and charging the maximum

- 55 -


k

allowable front load and that we were looking to recover loads that had not been charged

before 1s` quarter statements were mailed out to clients." In a memo dated May 19, 2004,

Brennan bemoaned the fact that earlier "inattention to [maximizing] front loads for months cost

us a significant amount already. I am expecting transfers of an additional $1.7MM in the near

future and I do not want to see a repeat of this."

147. HSBC authorized Brennan to travel through Latin America to meet with PFA's

sales force and investors as part of on-going joint solicitation and promotional activities

involving PFA and HSBC. During those meetings, Brennan assured Plaintiff Fabio Eduardo

Moreno Charme and those other members of the Class who agreed to have HSBC serve as

trustee of their funds of the safe handling of their funds, or their representatives, the security of

their investments, the integrity of PFA's operations, and HSBC's role in overseeing the safety

of the investor retirement trusts. However, HSBC knew at that time, or was severely reckless

in not knowing, that it was making no effort to either insure that investors instructions were

being followed or that investor funds were being handled properly and securely. Nonetheless,

HSBC never disclosed these facts to Plaintiff Fabio Eduardo Moreno Charme, or those other

members of the Class who agreed to have HSBC serve as trustee of their funds.

148. The joint PFA/HSBC "road show" included tour stops on the following dates and

in the following locations: March 1, 2004, Buenos Aires; September 21, 2004, Caracas;

September 23, 2004, Maracaibo, VZ; October 12, 2004, Sao Paolu; October 14, 2004, Buenos

Aires; October 25, 2004, Quito; October 28, 2004, Quayaquil, Ecuador; November 8, 2004,

San Jose, Costa Rica.

149. During this "road show", Brennan showed investors and their agents a Powerpoint

presentation touting PFA and its relationship with HSBC. Among the claims made in the

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presentations were that PFA was "registered in the State of Florida since 1999" and that its

business was audited by "KPMG, the Florida Office of Financial Regulation and the Securities

and Exchange Commission (SEC)." Another of the Powerpoint slides identified HSBC Bank

USA as the "Trustee Bank." This slide contained a diagram with two dialogue boxes radiating

out of HSBC's name which stated: (1)"Investment in Mutual Fund Component," and (2)

"Insurance Component/PFA Assurance Group Ltd, Life Insurance-Fixed Term." In yet

another slide, HSBC's headquarters was shown with the HSBC corporate logo prominently

displayed on the headquarters building and separately at the lower left side of the picture. This

slide asserted that HSBC Holdings is the second largest, and one of the most solid, financial

institutions in the world, with a market value of $173.97 billion. Other slides stated that under

the Liberty Plan and the Capital Trust Plan, payments were to be made directly to HSBC Bank

USA. Plan contributions, the slides noted, included "life insurance for 30% of the plan

contributions for the first 4 years."

150. The effect of all of these slides was to firmly establish in the minds of the

investors and their agents that HSBC stood behind PFA and the trusts, and assumed a fiduciary

duty toward those who invested in them. Further, HSBC knew, or was severely reckless in not

knowing, that the investors and agents who saw the Powerpoint presentation would repeat the

assurances that it contained to other investors and potential investors in the PFA trusts.

However, HSBC never disclosed to those in attendance that this presentation was false and

misleading, including but not limited to the fact that PFA was not registered in the State of

Florida since 1999, that its business was not audited by KPMG, the Florida Office of Financial

Regulation and the SEC, and that life insurance was not being purchased as represented.

Moreover, HSBC never disclosed to Plaintiff Fabio Eduardo Moreno Charme, or those other

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k

members of the Class who agreed to have HSBC serve as trustee of their funds, that up to 90%

of the investor's initial investment would be immediately diverted upon receipt by PFA for

non-investment and non-insurance purposes.

151. HSBC authored a letter, which PFA sent in September 2004, to assuage investor

concerns regarding the accuracy of account statement information. The letter described

HSBC's role in preparing the account statement information and vouched for the integrity of

the fraudulent retirement trust balances sent to investors. HSBC told investors "HSBC is

reconciling our operations and systems with those of PFA," and that it was "reviewing every

account individually" to ensure the "integrity of the information supplied to PFA clients."

(emphasis supplied ). PFA and HSBC used this letter to solicit additional PFA investors.

HSBC never disclosed to Plaintiff Fabio Eduardo Moreno Charme, or those other members of

the Class who agreed to have HSBC serve as trustee of their funds, that it had undertaken no

such review, and never did. Further, HSBC never disclosed to Plaintiff Fabio Eduardo Moreno

Charme, or those other members of the Class who agreed to have HSBC serve as trustee of

their funds, that none of the investors had actual "balances" because HSBC never established

separate sub-accounts, and further that the figures attributed to each investor were inflated by

as much as 90%.

152. HSBC knowingly, or severely recklessly, assisted PFA in circumventing foreign

currency, banking, and insurance regulations governing PFA's activities in Latin America,

intended to protect investors in those countries from fraudulent and illegal business practices.

For example , in a memorandum dated December 17, 2004, from HSBC Compliance and Legal

Group First Vice President Jeannette Almengor to HSBC Senior Vice President for

Compliance (USA), Almengor warned that "the offering of this [PFA trust] product as it has

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being [sic] is illegal in the eyes of the Panama Securities Commission." In addition, a

November 12, 2004, memorandum authored by HSBC officer Fernando Busmello to Quinn

warned HSBC senior management of the "very restrictive regulations in respect of the products

offered by PFA," licensing requirements , and prohibitions against the offering of insurance

contracts "directly or indirectly through intermediaries ." Busmello warned that HSBC's

involvement with PFA entailed a "risk not acceptable for local senior management" and

recommended "the exclusion of HSBC logo from [PFA promotional] materials." Despite these

red flags and warnings, HSBC never disclosed to Plaintiff Fabio Eduardo Moreno Charme, or

those other members of the Class who agreed to have HSBC serve as trustee of their funds, that

PFA was circumventing such regulations or that HSBC was actively assisting PFA in its efforts

to circumvent these regulations.

153. HSBC knew, or was severely reckless in not knowing, about lawsuits instituted by

SunTrust against PFA, by the IPM against PFA and by fourteen (14) investors against PFA,

Lehman Brothers and SunTrust, all as previously alleged above. HSBC never disclosed to

Plaintiff Fabio Eduardo Moreno Charme, or those other members of the Class who agreed to

have HSBC serve as trustee of their funds, the existence of the lawsuits or the serious

allegations of fraud, illegality and other serious misconduct brought against PFA, its insiders

and predecessor "Trustees."


HSBC disclosed them to Plaintiff Fabio Eduardo Moreno Charme, or those other members of

the Class who agreed to have HSBC serve as trustee of their funds, would have prompted those

investors not to invest, transfer, or renew their investment of retirement and other savings "in

Trust" with HSBC.

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PFA's Fraud is Exposed

155. On March 28, 2005, the SEC commenced an action in United States District

Court for the Southern District of Florida, Case No. 05-20863- CIV-Moore by filing a

Complaint for Injunctive and Other Relief. The SEC's complaint alleges that PFA, its

principals and affiliated companies, engaged in a massive investment fraud in violation of

multiple provisions of the federal securities laws.

156. That same day, the Court in the SEC action entered a Temporary Restraining

Order and Other Emergency Relief ("TRO"). The TRO provides that the SEC "has made a

sufficient and proper showing in support of the relief granted herein by presenting a prima

facie case of securities laws violations by [PFA], and by showing a reasonable likelihood that

the Defendants will harm the investing public by continuing to violate the federal securities

laws if they are not enjoined." The TRO also enjoins PFA and its principals from continuing

to violate federal securities laws, and freezes their assets.

157. Prior to the SEC complaint, Plaintiffs were not aware of the full extent of PFA's

diversion of investor funds. Moreover, it was not until some time after the SEC filed its

complaint that Plaintiffs learned of the Financial Institution Defendants' knowledge of the facts

set forth above, and their violation of their fiduciary duties in failing to alert Plaintiffs and the

Class to these facts regarding PFA.

CLASS ACTION ALLEGATIONS

158. Plaintiff brings this action as a class action against all Defendants pursuant to

Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of a class (the "Class")

consisting of

-60-

Case 1:05-cv-21169-KMM Document 242 Entered on FLSD Docket 05/23/2006

All persons who purchased, sold, held and/or retained investmentsin retirement trust plans offered by PFA, or its affiliatedcompanies, during the period commencing January 1999 throughthe present ("Class Period"). Excluded from the Class areDefendants, PFA, PFA Assurance, PFA International, Claren TPA,Luis Cornide, Robert de la Riva and all of the Defendants' alter-ego entities, all employees or agents of Defendants and agents ofthe Defendants' alter ego entities, all subsidiaries and affiliates ofthe Defendants, the Defendants' officers, agents, and employees,any agents or brokers (and their immediate family members) whosold or solicited the sale of investments in PFA or PFA Assurance.

Numerosity

Page 61 of 71 q

159. The individual Class members are so numerous that joinder of all members is

impractical. Upon information and belief, the Class includes approximately 3,400 investors

residing throughout the world. While many members of the Class reside in Florida, members

of the Class are so numerous and geographically dispersed throughout the United States and

abroad that joinder of all Class members is not feasible. Plaintiffs do not anticipate any

difficulties in the management of this consolidated action as a class action.

Commonality

160. There are questions of law and fact that are common to the claims of Plaintiffs

and entire Class. Among these common questions are the following:

a. Whether the Defendants were part of the fraudulent scheme;

b. Whether the Defendants knowingly made material omissions;

c. Whether the Defendants were reckless in not knowing of the materialomissions

d. Whether the Plaintiffs were damaged by the Defendants' course ofconduct.

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Typicality

161. Plaintiffs' claims are typical of the claims of the Class members and all Class

members sustained damages arising out of the Defendants' wrongful conduct in violation of

federal securities laws complained of herein.

162. Upon information and belief, there has never been a prior lawsuit certified as a

class action on behalf of Plaintiffs or the Class.

Adequacy of Representation

163. Plaintiffs are adequate representatives of the Class and will fairly and adequately

protect the interests of the Class. Plaintiffs are committed to the vigorous prosecution of this

action and have retained competent counsel, experienced in litigation of this nature, to

represent them. There is no hostility between Plaintiffs and the unnamed Class members.

Plaintiffs do not anticipate any difficulty in the management of this litigation as a class action.

164. To prosecute this case , Plaintiffs have chosen the law firms of Kozyak, Tropin &

Throckmorton, P.A. and Podhurst Orseck, P.A. - law firms experienced in class action

litigation, including specifically class actions dealing with securities fraud and professional

misconduct. The law firms have the financial and legal resources to meet the substantial costs

and legal issues associated with this type of litigation.

Requirements of Fed. R. Civ. P. 23(b)(3)

i. Predominance

165. The questions of law or fact common to the claims of Plaintiffs and of each Class

member predominate over any questions of law or fact affecting only individual members of

the Class. Reliance is presumed or proven on a class-wide basis, for three reasons:

-62-


t

(1) All claims by Plaintiffs and the unnamed Class members involve overarching

omissions, affecting the entire Class, including each Defendants' uniform

omissions by failing to disclose: (a) the commingling of investor funds in

accounts maintained by the Financial Institution Defendants; (b) PFA's unfettered

control over the funds; (c) the diversion of the funds for non-investment purposes,

and; (d) the failure to register securities despite the legal obligation to do so.

(2) All claims by Plaintiffs and the unnamed Class members are based on the

same alleged "across the board" conduct by the Defendants in a common

fraudulent scheme of inducing them to purchase unregistered securities, to handle

their retirement investments and to retain their investments at PFA.

(3) The PFA securities were not traded on the open market, and could not have

been offered on the market at any price but for the fraudulent scheme in which the

Defendants participated.

166. Common issues predominate when, as here, liability can be determined on a class-

wide basis, even when there will be some individualized damage determinations. As a result,

when determining whether common questions predominate, courts focus on the liability issue,

and if the liability issue is common to the class as in the case at bar, common questions are

held to predominate over individual questions.

167. The predominance requirement of Fed . R. Civ. P. 23(b)(3) is satisfied because all

claims by Plaintiffs and the unnamed Class members are based on the same alleged "across the

board" wrongful conduct of Defendants.

-63-


ii. Superiority

168. A class action is superior to thousands of individual actions in part because of the

non-exhaustive factors listed below:

a. Joinder of all Class members would create extreme hardship andinconvenience for the affected investors because of their immensegeographical dispersion. Class members reside outside of the state ofFlorida and most reside outside of the United States.

b. Individual claims by the Class members are impractical because the coststo pursue individual claims far exceed the value of what any one Classmember has at stake. As a result, individual Class members have nointerest in prosecuting and controlling separate actions.

c. There are no known individual Class members who are interested inindividually controlling the prosecution of separate actions against thesedefendants.

d. The interests of justice will be best served by resolving the commondisputes of potential Class members in one forum.

e. Individual suits would not be cost effective, especially in light of the factthat all of the Class members are citizens of other states and many areforeign nationals.

f. The action is manageable as a class action; individual lawsuits are noteconomically maintainable as individual actions.

-64-


i

CLAIMS FOR RELIEF

COUNTIAgainst Defendants Under Sections 12(1) and 15 of the Securities Act

169. Plaintiffs reallege and incorporate by reference the allegations of paragraphs 1-

168 as though fully set forth herein.

170. Plaintiffs assert this Count against Defendants under Sections 12(1) and 15 of the

Securities Act, 15, U.S.C. §§ 77(1) and 77(o).

171. The investment trusts described herein which were offered and sold to Plaintiffs

and Class members were securities as that term is defined under the Securities Act. Those

securities were offered for sale and/or sold by PFA and the Financial Institution Defendants.

172. The securities sold by PFA and the Financial Institution Defendants and

purchased by the Plaintiffs and Class members do not constitute a class of securities exempt

from registration by any of the exemptions recognized under the law.

173. Plaintiffs and Class members hereby tender their securities to the Defendants.

174. Plaintiffs and Class members have been damaged by the conduct of the

Defendants as alleged herein.

-65-


COUNT IIAgainst Defendants for Violations of Section 10(b) of the Securities Exchange Act of 1934

and Rule 10b-5

175. Plaintiffs repeat and reallege and incorporate by reference paragraphs 1 through

168 as though fully set forth herein.

176. Between 1999 and March 2005, each and every one of the Defendants, directly

and indirectly, by use of the means and instrumentality of interstate commerce, and of the

mails in connection with the purchase or sale of securities described herein, have knowingly or

severely recklessly (a) employed a device, scheme and artifice to defraud, (b) made untrue

statements of material facts and omitted material facts necessary to make the statements made,

in the light of the circumstances under which they were made, not misleading; and (c) engaged

in acts, practices and courses of business which have operated as a fraud upon the purchasers

of such securities.

177. Each and every Defendant carried out their scheme and made untrue statements of

material facts, and omitted to state material facts, with actual knowledge of the materially

misleading nature of the scheme and the misrepresentations and omissions, or in reckless

disregard of the same.

178. By reason of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j(b), and Rule lOb-5, 17 C.F.R. §240.1 Ob-5, thereunder.

179. As a direct and proximate result of the conduct alleged herein, Plaintiffs have

suffered damages in connection with their investments with PFA.

-66-


COUNT IIIAgainst Cornide and de la Riva for Violation of Section 20(a) Of the Exchange Act For

Control Persons Liability

180. Plaintiffs repeat and reallege paragraphs 1 through 168 as though fully

incorporated herein.

181. As specifically alleged above, Defendants Cornide and de la Riva were, directly

or indirectly, control persons of Pension Fund of American for purposes of Section 20(a) of the

Exchange Act, 15 U.S.C. §78t(a), in that they exercised control over PFA's general affairs,

including the content of public statements disseminated by PFA.

182. PFA violated Section 10(b) of the Exchange Act and rule lOb-5 there under.

183. As control persons of PFA, Comide and de la Riva are jointly and severally liable

with and to the same extent as PFA for their violations of Section 10(b) of the Exchange Act,

15 U.S.C. §78(b), and rule lOb-5, 17 C.F. R. § 240 . 1Ob-5, there under.

184. As a direct and proximate result of the conduct alleged herein, Plaintiffs have

suffered damages in connection with their investments with PFA.

DEMAND FOR JURY TRIAL

185. Plaintiffs request a jury trial on any and all counts for which a trial by jury is

permitted by law.

RELIEF REQUESTED

WHEREFORE, Plaintiffs, individually and on behalf of the Class, respectfully request

that this Court:

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a. Certify this action as a class action under Fed. R . Civ. P. 23;

b. Award Plaintiffs and the Class their damages , including pre-judgment interest , under each of the counts of this complaint;

c. Award Plaintiffs and the Class punitive damages;

d. Award Plaintiffs and the Class their attorneys fees, costs andexpenses under each of the counts of this complaint; and

e. Award Plaintiffs and the Class such further relief as is appropriatein the interests ofjustice.

PODHURST, ORSECK, P.A.25 W. Flagler Street , Suite 800Miami, Florida 33130(305) 358-2800(305) 358-2382 - fax

Respectfully submitted,

KOZYAK TROPIN & THROCKMORTON, P.A.2525 Ponce de Leon9th FloorCoral Gables, Florida 33134Telephone: (305) 372-1800Fax: (305) 372-3508

By:Victor M. Diaz, Jr., BN: 800Aaron S. Podhurst, FBN: 63606

Counselfor the Plaintiffs and the Class

CARLOS VELASQUEZ, P.A.Carlos Velasquez, Esq.101 N. Pine Island RoadSuite 201Plantation, Florida 33324Tel: (954) 382-0533

By:Harley S. Tropizf, Esq., FBN: 241253David P. Milian, Esq., FBN: 844421Thomas A. Tucker Ronzetti, Esq., FBN: 965723Christopher F. Branch, Esq., FBN: 941751

Additional Plaintiffs' Counsel

Case 1 : 05-cv-21169-KMM Dpcument 242 Entered on FLSD Docket 05/23/2006 Page 69 of 71 q

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing was served

by Mail this '&`^y ^ day of May, 2006 upon the parties on the attached service list.

David Milian

265571 v. I

Case 1:05-cv-21169-KMM Dcument 242 Entered on FLSD Doket 05/23/2006 Page 70 of 71 q

SERVICE LISTCASE NO. 05-21169-CIV-MOORE

Christian Bartholomew, Esq.

Morgan , Lewis & Bockius LLP

1111 Pennsylvania Avenue, NW

Washington , D.C. 20004

cbartholomew(@morganlewis.com

Attorneys for Lehman Brothers

Bobby Brochin, Esq.Morgan, Lewis & Bockius LLP5300 Wachovia Financial Ctr.200 S. Biscayne Blvd., Suite 5300Miami, FL 33131-2339Rbrochina,morganlewis. comAttorneys for Lehman Brothers

Richard Critchlow, Esq.Harty Schafer, Esq.Kenny Nachwalter, P.A.1100 Miami Center201 S. Biscayne BoulevardMiami, Florida 33131E-Mail: R.AC(2iikennynachwalter.com

E-Mail: HR SLivkennynachwalter. corn

Attorneys for Raymond James

Theresa L. Davis, Esq.Jonathan S. Feld, Esq.David H. Kistenbroker, Esq.Katten Muchin Rosenman LLP525 W. Monroe St., Suite 1900

Patricia Gorham, Esq.

Richard L. Robbins, Esq.

Ellen B. Cohen, Esq.

Sutherland Asbill & Brennan LLP999 Peachtree Street, NE, Suite 2300Atlanta, Georgia 30309-3996E-Mail: Patricia. Gorlâat2'a`.:sablatti.coinE-Mail: RichardRnhh/;is ri>.s^xhlcnti.coinAttorneys for Merrill Lynch

Dean Bunch, Esq.Sutherland Asbill & Brennan LLP3600 Maclay Blvd., S., Suite 202Tallahassee, Florida 32312-1267E-Mail: I)ean. B,i,ich(î sablau'. coneAttorneys for Merrill Lynch

Rudolph Aragon, Esq.White & Case LLPWachovia Financial Center, Suite 4900200 South Biscayne BoulevardMiami Florida 33131-2352E-Mail: Raragon,rwhitecase. cornAttorneys for Merrill Lynch

Chicago, Illinois 60661E-Mail : theresa . [email protected]: jonathan . fel.d(i .katLenlaw.cornE-Mail : david . kistenbrokerckattenlaw. comAttorneys for HSBC

Thomas E. Scott, Esq.Cole, Scott & Kissane, P.A.

Pacific National Bank Building

1390 Brickell Ave., 3`d Floor

Miami , Florida 33131

E-Mail: TE S ,Cni,,csklegal. com

Attorneys for HSBC

Jeffrey R. Sonn, Esq.Sonn & Erez100 S.E. Third AvenueSuite 1500Fort Lauderdale , Florida 33394E-Mail : Tsonninvestorlaw.usAttorneys for OIG, Inc.


David M . Levine, Esq.Jeffi-ey C. Schneider, Esq.Tew Cardenas LLPFour Seasons Tower, 15"' Floor1441 Brickell AvenueMiami , Florida 33131

E-Mail : DML tewlaw. cone

E-Mail : FCS(-tb tewla'w.com

Co-Counselfor Thomas G. Schultz, Receiver

Luis S. Konski, Esq.Becker & Poliakoff, P.A.121 Alhambra Plaza,10 FloorCoral Gables, FL 33134E-Mail: Lkonski("r,,i,becker-poliakof coin

Attorneys for Cornide & De La Riva

Marty Steinberg, Esq.Samuel A. Danon, Esq.Hunton & Williams LLP1111 Brickell AvenueSuite 2500Miami, Florida 33131E-mail: MsteinbergrLhunton. com

E-Mail: SdanoncLalhunLO Coin

Attorneys for Suntrust

A.C. Brooke Clagett, Esq.Morgan, Lewis & Bockius, LLP

1111 Pennsylvania Ave, NWWashington, DC 20004-2541Attorneys for Lehman Brothers, Inc.

BclaegttaMorganlewis.corn

254715.1 (\VP)

Documents

UNITEDSTATESDISTRICTCOURT …securities.stanford.edu/filings-documents/1035/LBI05_01/2006523_r... · CESARAGUIRREURBANEJA,JOSELUIS ZAMBRANO,MALLIYASALAZAR,JULIO LEDESMA,FERNANDOQUEVEDO,ENRIQUE