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BCCI HOLDINGS, S.A. v. CLIFFORD

May 5, 1997

BCCI HOLDINGS (LUXEMBOURG), S.A., et al., Plaintiffs,
v.
CLARK M. CLIFFORD, et al., Defendants.



The opinion of the court was delivered by: GREEN

 This action stems from the collapse of the Bank of Credit and Commerce International ("BCCI") and has been brought by the Court Appointed Fiduciaries on behalf of the BCCI Group. Presently before the Court are the defendants' motions to dismiss. For the reasons stated below, the motions will be denied.

 I. Background

 In a nine-count Complaint, the plaintiffs allege civil RICO, breach of fiduciary duty, negligence, unjust enrichment, common law fraud and conversion against Defendants Clark M. Clifford ("Clifford") and Robert A. Altman ("Altman"). They also charge breach of fiduciary duty, negligence, aiding and abetting, common law fraud and unjust enrichment against Defendant Baldwin B. Tuttle ("Tuttle") as well as a cause of action against the former partners of Clifford & Warnke based upon the firm's conflict of interest and negligent advice. *fn1" Complaint P1.

 The plaintiffs assert further that the defendants were mired in irreconcilable conflicts of interest arising from their simultaneous representation of the BCCI Group, the First American companies (Credit and Commerce American Holdings, N.V. ("CCAH"), and Credit and Commerce American Investment, B.V. ("CCAI")), First American Corporation ("FAC"), First American Bankshares ("FAB") and others. Id. PP2 & 34. According to the Complaint, "at all relevant times, until banking regulators brought the BCCI Group under court-supervised control on July 5, 1991, the BCCI Group was adversely dominated by corrupt senior managers and directors, who, in conjunction with Defendants Clifford and Altman engaged in the harmful acts" stated in the Complaint. Id. P96.

 BCCI's acquisition of First American

 The principal allegation stems from actions taken by the allegedly corrupt senior managers and officers of BCCI and Clifford and Altman, based upon legal advice provided by its counsel, the law firm of Clifford & Warnke, to acquire ownership fraudulently and maintain control illegally of First American Bank. *fn2" Agha Hasan Abedi ("Abedi"), who founded BCCI and served as its top corporate director until 1988, retained Defendants Clifford and Altman in late 1977 to assist in the acquisition of Financial General Bankshares *fn3" ("FGB") through the purchase of stock by nominees. Complaint PP36 & 39-40. Abedi had long been interested in entry into the United States' banking market, but had been unsuccessful in his earlier attempts to acquire the Bank of Commerce, a New York subsidiary of FGB. Id. P39. Abedi planned to acquire FGB secretly by circumventing SEC disclosure regulations through the allocation of shares among nominee purchasers. Each nominee purchaser would acquire just under five percent in order to avoid triggering disclosure and reporting requirements under U.S. law. Id. P40.

 The plaintiffs contend that Defendants Clifford and Altman, supported by Defendant Tuttle's legal advice and regulatory filings, played a central role in the scheme. As reflected in a telex to Abedi from his principal assistant, Abdus Sami:

 
In view of the possibility of this contest and also for presentation of the holding company application to the Fed our friend advised that we may retain Mr. Clifford as chief counsel, the preparatory functions being handled by Mr. Metzger's firm.
 
Accordingly, I met Mr. Clark Clifford and explained to him our strategy and our goal. He was happy to know the details and blessed the acquisition. In the next few days we would start putting together material for a tender offer.

 Complaint P40 (quoting telex of January 30, 1978).

 The Complaint declares that during the course of the FGB takeover, Defendants Clifford, Altman and Tuttle acted in various capacities with inherent conflicts of interest, and they knowingly prepared and submitted numerous false filings with the SEC and state and federal bank regulators. Id. PP41-42. Among other things, Clifford and Altman are said to have misrepresented the identity of the FGB stock purchasers as well as the economic interests underlying the purchases. Those alleged misrepresentations include the following:

 1) On March 17, 1978, Clifford and Altman filed individual Schedules 13D with the SEC, which falsely stated, inter alia, that "none of the Stock Purchasers . . . intended to act together with any other person with respect to shares of [FGB]," and that "no other person had an economic interest in the shares of [FGB] beneficially owned by them." Id. P43.

 2) On September 15, 1978, Clifford and Altman filed an amendment to the original Schedule 13D, stating that "CCAH does not and will not own, directly or indirectly, any shares of the capital stock of [BCCI], and BCCI will have no interest in CCAH." Id. P44.

 3) In early 1978, in response to the Federal Reserve's questions to Clifford and Altman, Defendant Altman "falsely stated that the BCCI Group was acting as the commercial banker and financial advisor for the Middle Eastern investors, and that 'while BCCI had been used to move funds for the investors into the U.S., it had not financed any of the FGB share purchases.'" Id. P45.

 4) Altman filed a false application on October 19, 1978, which stated that the "cash required to make the tender offer would come from the investors' personal funds and possibly from personal borrowings from one or more financial institutions (which would be unaffiliated with BCCI or any of its affiliates)." Id. PP46-47. Altman assured the Federal Reserve that FGB shares would not be used as collateral to secure any loans made for the stock purchase. Id. Similar false statements were made to the New York state banking regulators in 1979, id. P47, and to the Federal Reserve in 1980. Id. P49.

 5) In the 1980 Federal Reserve Application, Defendants Clifford, Altman and Tuttle falsely stated that "BCCI owns no shares of FGB, CCAH or CCAI, either directly or indirectly, nor will it if the application is approved" and that "neither is [BCCI] a lender, nor will it be, with respect to the acquisition by any of the investors of either FGB, CCAI or CCAH shares." Id. Defendant Tuttle established the plan to conceal BCCI's involvement as reflected in a memorandum to Defendant Altman:

 
We need to decide now what is said in the initial application as to the participation, or not, of Abedi, BCCI and ICIC. While I believe others may feel differently, my view is that because of the legal problems under the Bank Holding Company Act and the International Banking Act which their participation would raise as well as the previous publicity, a succinct statement of noninvolvement should be made in the initial filing.

 Complaint P50.

 The plaintiffs allege that, while knowing of BCCI's involvement from the outset, Clifford, Altman and Tuttle implemented their plan of concealment. On April 23, 1981, Clifford and Altman appeared before the Federal Reserve, representatives of the Office of the Comptroller of the Currency, and three state bank regulatory agencies. Clifford is alleged to have falsely told them that "there is no function of any kind on the part of BCCI . . . . I know of no present relationship that exists. I know of no planned future relationship that exists," id. P52, and that any similarity between the names Bank of Credit and Commerce International, Credit and Commerce American Holdings and Credit and Commerce American Investment was a coincidence. Id. P53. Altman is alleged to have falsely stated that "there [was] no connection between [CCAH/CCAI] and BCCI in terms of ownership or other relationship." Id. Clifford and Altman are accused of having made similar false statements to the Commission of Virginia Financial Institutions, id. P54 (Clifford), to New York State Senator Manfred Ohrenstein, id. P55 (Altman), and to the Federal Reserve on June 15, 1981, id. P56 (Altman).

 Banking regulators relied upon the representations by Clifford, Altman and Tuttle and, on August 25, 1981, the Federal Reserve approved the applications of CCAH, CCAI and their newly formed subsidiary FGB Holding Corporation ("FGBHC") to become bank holding companies by acquiring FGB. Id. P58. In August of 1982, FGB became First American Bankshares, Inc., and FGBHC became First American Corporation (FAC).

 Conflicting roles

 Defendants Clifford and Altman then assumed "additional and conflicting roles." Id. P60. Once the Federal Reserve approved the applications, but before the name changes, Clifford became Chairman of the Board of FGB and a Director of CCAH, CCAI and FGBHC while Altman became a Director and Secretary of CCAH and CCAI, a Director and President of FGBHC and a Director of FGB. Plaintiffs contend that "Defendants Clifford and Altman were the effective senior management of First American while at the same time remaining as legal counsel to the BCCI Group." Id.

 Soon thereafter Clifford and Altman began meeting with Abedi and Swaleh Naqvi (the second highest corporate officer of BCCI from 1973 to 1988 and the top corporate officer after Abedi's 1988 heart attack until April 1990) on a monthly basis to discuss the ongoing performance of First American and its integration with the BCCI Group. Id. P61. Plaintiffs aver that "Defendants Clifford, Altman and Tuttle provided legal advice to the BCCI Group on how to achieve apparent compliance with their false representation that the BCCI Group would not be involved in financing or controlling CCAH's activities, and that the BCCI Group would act solely as 'an advisor and conduit to CCAH's shareholders.' Together with Abedi and Naqvi, Defendants used the cover of this purported advisory relationship to disguise the nominee ownership of CCAH and ultimately First American." Id.

 After the acquisition of First American, Clifford and Altman are alleged to have engaged in various transactions while simultaneously representing the BCCI Group and First American. In concert with Abedi and Naqvi, Defendants Clifford and Altman developed and implemented a scheme whereby "the funding for nominee purchases of additional CCAH shares would be provided in substantial portion by the BCCI Group." Id. P62. To ensure that the holdings of individual shareholders remained below the thresholds that would trigger regulatory disclosure requirements, allocations of CCAH shares were made "based on secret agreements with nominee shareholders, in which the BCCI Group funded purchase of the shares on a non-recourse basis." Id. P63. As a result of this scheme, the BCCI Group was able to control more than 25 percent of the voting shares of CCAH, in violation of the Bank Holding Company Act. Id. P64. The plaintiffs contend that "this violation was caused by Defendants Clifford's, Altman's and Tuttle's negligent provision of legal advice to the BCCI Group with respect to filing and registration requirements under the U.S. banking laws." Id. The plaintiffs also claim, "on information and belief," id. P67, that Defendants Clifford and Altman and the Clifford & Warnke partners billed the BCCI Group for Tuttle's legal work twice: once directly and once indirectly. Id. They also declare that Clifford and Altman billed the BCCI Group excessively for certain transactions. Id. P67.

 Clifford and Altman's Fraudulent Stock Purchases

 Plaintiffs next contend that in 1986, through a rights offering to CCAH shareholders, Clifford and Altman "were able to make personal investments in CCAH rights shares in no-risk transactions financed by the BCCI Group." Id. P69. *fn4" The BCCI Group, through BCCI Overseas, loaned Clifford and Altman $ 9,960,920 and $ 4,979,352, respectively, to acquire CCAH shares. Id. PP71 & 73. The loans were on a non-recourse basis with only the shares pledged as collateral. Id. P73. Clifford and Altman purportedly incurred no obligation to pay interest on such loans, id., and the agreements pledging CCAH shares as security were never recorded in the CCAH share registry even though Clifford and Altman, as counsel for the BCCI Group, were required to ensure that all such pledges were registered. Id.

 The Complaint further recites that at the same time they received these nonperforming secret loans, Clifford and Altman entered into a side agreement with the BCCI Group relating to the CCAH stock purchases. The BCCI Group agreed to buy Clifford and Altman's shares "in such manner, amount, and at such prices as BCCI and the undersigned shall mutually determine." Id. P74. The side agreement also provided that Clifford and Altman were not "obligated personally to repay to BCCI the loan principal or any interest accrued thereon [and that] BCCI shall be limited solely to the undersigned's interest in the CCAH shares and any proceeds thereof to repay the loan and interest thereon." Id.

 Although the CCAH Board of Directors approved the purchase of stock by Clifford and Altman, the true terms of the purchase were not disclosed to the Directors, banking regulators or the BCCI Group. Id. PP75 & 76.

 In 1988, Altman met with Naqvi and Abedi, advising them that he and Clifford were ready to sell some of their CCAH shares. Id. P79. While Altman wanted to realize a net profit of $ 1.5 million on his CCAH shares, he advised Naqvi and Abedi that Clifford expected a net profit of $ 3 million. Id. To meet their profit targets, Naqvi caused the BCCI Group to execute a fraudulent transaction in the name of a nominee, Mohammed Mahmoud Hammoud, at the price of $ 6,800 per share (or 2.6 times book value). Id. P80. The plaintiffs specify that "Clifford and Altman knew that this was not an arms' length commercial transaction and that the shares were being transferred to a nominee in order to generate false profits for them." Id. Once the transactions were executed, Clifford received $ 7,248,680.93 and Altman received $ 3,626,799.27, pre-tax, which represented approximately $ 3.2 million and $ 1.6 million, respectively, after taxes. Id. PP82-84.

 Plaintiffs further allege that Clifford and Altman entered into a separate agreement eliminating any risk that the shares they retained after the 1988 sale would decrease in value. On April 26, 1988, the BCCI Group agreed to repurchase all shares retained by Defendant Clifford on his death at a price of $ 2310.00 per share; Altman obtained a similar deal. Id. P86. These agreements also applied to convertible debentures issued by CCAH and purchased on or about December 4, 1990, by Clifford and Altman, to maintain the value of their interests in First American, in the amounts of $ 249,000 and $ 123,000, ...


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