Alleged OneCoin co-conspirators dismissed from investor lawsuit
Investors in fraudulent cryptocurrency scheme OneCoin have been dealt a heavy blow, as a number of defendants in a lawsuit brought by the investors managed to secure dismissal.
On September 20, 2021, Judge Valerie E. Caproni of the New York Southern District Court signed an order dismissing Mark Scott, David Pike, Nicole Huesmann, and The Bank of New York Mellon from the case.
Let’s recall that the plaintiffs are investors in OneCoin offerings. They report having suffered losses from their investments totaling in the hundreds of thousands of dollars. They seek to represent a class of investors consisting of all individuals who invested in a OneCoin offering between April 2014 and March 2018 and who suffered financial losses.
Plaintiffs’ Second Amended Complaint (SAC) asserts eleven claims against eight defendants, whom Plaintiffs silo into smaller groups.
- The “OneCoin Defendants” comprise the corporate entity, OneCoin Ltd., and OneCoin’s founders, Ruja Ignatova and Sebastian Greenwood, whom Plaintiffs label the “Founder Defendants.” Against the OneCoin Defendants, Plaintiffs assert claims arising under the federal securities laws, common law claims for fraud, fraudulent misrepresentation, negligent misrepresentation, conversion, and civil conspiracy, and breach of contract claims.
- The “Scott Group Defendants” comprise Mark Scott, David Pike, Nicole Huesmann, and Gilbert Armenta, against whom Plaintiffs assert claims for aiding and abetting fraud, unjust enrichment, and civil conspiracy.
- Finally, Plaintiffs sue The Bank of New York Mellon Corporation (BNYM) for aiding and abetting fraud and commercial bad faith.
While Plaintiffs accuse the OneCoin Defendants of carrying out the fraudulent cryptocurrency scheme, Plaintiffs seek to hold the Scott Group Defendants liable for allegedly assisting the fraud by laundering millions of dollars of fraudulently obtained funds. Similarly, Plaintiffs sue BNYM for allegedly facilitating the Scott Group Defendants’ money laundering.
Defendants Scott, Pike, and Huesmann each moved to dismiss the complaint for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2), and for failure to state a claim, pursuant to Rule 12(b)(6). BNYM has moved to dismiss the complaint against it for failure to state a claim pursuant to Rule 12(b)(6).
According to the plaintiffs, the Scott Group Defendants used shell companies and bank accounts all over the world to launder more than $400 million in criminal proceeds derived from the OneCoin fraud, in exchange for which they received more than $60 million.
The purported leader of the Scott Group was Mark Scott, a Florida lawyer licensed to practice in both Florida and New York. Scott first met Ruja Ignatova (the “crypto queen”) in September 2015. His primary role in the fraud appears to have been creating and operating foreign hedge funds, which were used to launder OneCoin proceeds.
Assisting Scott in this venture was David Pike, also a resident of Florida. Specifically, in February 2016, Scott registered MSS International Consultants Limited (“MSSI”) – the sole two directors of which were Scott and Pike – in the British Virgin Islands; Scott and Pike opened numerous investment funds through MSSI to facilitate their money laundering activities.
In particular, they registered funds in the British Virgin Islands, the Cayman Islands, and Ireland (collectively the “Fenero funds”). The Fenero funds received and transmitted by wire hundreds of millions of euros in 2016 and 2017. Several of the wire transfers involved bank accounts associated with the OneCoin fraud; the wire transfers spanned the globe, involving banks in Singapore, Bulgaria, Germany, and Ireland.
Although Scott originally enlisted a separate company to provide administration services for the Fenero funds, when that company raised questions regarding the origin of certain funds transferred into Fenero bank accounts, Scott terminated the relationship. Thereafter, Scott directed banks, including some that transact significant business in the Southern District of New York, to transfer money that was the proceeds of the OneCoin fraud; he structured the transactions in order to evade anti-money laundering (“AML”) procedures.
Plaintiffs allege generally that, in addition to the July 2016 transaction, Scott and co-Defendant Huesmann “knowingly directed their money laundering efforts [through] Defendant BNYM.”
Nicole Huesmann is a Florida lawyer who, under the guise of providing routine legal services, allegedly assisted Scott launder the fraud proceeds.
According to the complaint, BNYM, a bank headquartered in New York, assisted the Scott Group Defendants and others to launder hundreds of millions of dollars of proceeds from the OneCoin fraud.Plaintiffs allege that, between 2015 and 2017, hundreds of transactions — including the $30 million transfer overseen by Scott in July 2016 — involving at least $300 million in funds fraudulently obtained from OneCoin investors, were processed through BNYM’s correspondent bank accounts.
The Court sided with the defendants. The Judge found that the Court does not have personal jurisdiction over any of the defendants in the Scott Group.
Defendants Scott, Pike, and Huesmann are all domiciled in Florida. Plaintiffs make no effort to assert that Scott, Pike, or Huesmann is subject to general jurisdiction in New York because he or she has contacts with New York that are sufficiently continuous or systematic to render the Defendant essentially at home in New York, notwithstanding Florida domicile.
Hence, there is no statutory basis for the Court to exercise personal jurisdiction over any of the Scott Group Defendants.
In support of its motion to dismiss Plaintiffs’ claims that it aided and abetted fraud and engaged in commercial bad faith, BNYM argues that Plaintiffs have latched onto — and have misleadingly presented — information revealed during related criminal cases. BNYM complains that Plaintiffs have painted it as a perpetrator of the money laundering scheme when it should truly be seen as a victim.
BNYM asserts that the record plainly reveals that it played no role in actively facilitating any money laundering; instead, BNYM was deceived by fraudsters who intentionally obfuscated transactions to avoid detection. More important for purposes of this motion, however, BNYM contends that Plaintiffs’ allegations are not pled with the requisite particularity required by Rule 9(b), and, even accepting Plaintiffs’ generalized and conclusory allegations as true, Plaintiffs cannot state a claim against BNYM because Plaintiffs have not alleged — and cannot allege — that BNYM had actual knowledge of the fraud or that BNYM provided substantial assistance to the fraudsters.
Because the Court agreed with BNYM that Plaintiffs’ allegations are insufficient, BNYM’s motion to dismiss was granted.
The Judge concluded:
“This case has been ongoing for over two years, Plaintiffs have had the assistance of a cooperator who played a central role in the OneCoin scheme, and they are on their third iteration of the complaint. Moreover, Plaintiffs’ jurisdictional allegations are doomed by multiple failures of law, and, therefore, additional discovery would not cure the jurisdictional defects. All claims against Defendants Mark Scott, David Pike, Nicole Huesmann, and The Bank of New York Mellon are, therefore, DISMISSED”.