Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 1 of 26

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF FLORIDA
CASE NO: 08-81177-CIV- RYSKAMP/VITUNAC
SFM HOLDINGS, LTD, and SALOMON
MELGEN, MD,
Plaintiffs,
vs.
JEROME FISHER,
Defendant.
____________________________________/
AMENDED COMPLAINT
Plaintiffs, SFM HOLDINGS, LTD. (SFM), through its General Partner, SFM
Investments, Inc., and SALOMON MELGEN, M.D. (DR. MELGEN), hereby sue Defendant,
JEROME FISHER (FISHER) and state:
Nature of the Action
1.

This action arises from FISHERs participation in a fraudulent scheme that sought

to, and ultimately did, steal fifteen million dollars ($15 million) from SFM and DR. MELGEN.
FISHER set the scheme in motion by inducing Plaintiffs to invest funds at Banc of America
Securities, Inc. (BAS) with his false statements.
Parties, Jurisdiction, and Venue
2.

This is an action for damages that exceed fifteen thousand dollars ($15,000.00),

exclusive of costs, interest, and attorneys fees.

3.

At all material times, SFM has been a Georgia limited partnership doing business

in Palm Beach County, Florida. SFM Investments, Inc., a Nevada corporation with its principal
place of business in Palm Beach County, Florida has been the General Partner of SFM. DR.

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MELGEN, a resident of Palm Beach County, has been the President of SFM Investments, Inc.
The actions of SFM described herein were undertaken by DR. MELGEN acting on its behalf.
4.

At all material times, FISHER has been a Palm Beach County resident.

5.

The causes of action set forth herein arose in Palm Beach County, as FISHER

made misrepresentations to DR. MELGEN in Palm Beach County upon which SFM and DR.
MELGEN relied in investing funds at BAS, DR. MELGEN signed the BAS account paperwork
in Palm Beach County, and DR. MELGEN suffered his losses in Palm Beach County.
6.

The losses described herein and the causes of action are separate and distinct from

any losses suffered, and/or claims made, regarding the KL Fund. Indeed, the Receiver for the
KL Fund receivership has expressly disclaimed any interest in the claims made herein.
7.

The claims stated herein are claims arising under Florida state law between

residents of the State of Florida. There is no basis for Federal jurisdiction. This action is being
filed in Federal court solely to comply with orders entered by this Court, and over the objection
of Plaintiffs that the United States District Court for the Southern District of Florida is without
jurisdiction to hear these claims. This action should be remanded to the Circuit Court in and for
Palm Beach County, Florida.1

Plaintiffs herein file state law claims against a single, non-diverse Defendant. There is no federal
subject matter jurisdiction over such a claim. See 28 U.S.C. 1331-32. The claims against Fisher do
not fall within the Courts supplemental jurisdiction, as the district court has dismissed all claims over
which it has original jurisdiction, the claims against non-diverse Defendant BAS. 28 U.S.C.
1367(c)(3). Plaintiffs recognize that subject matter jurisdiction is generally determined at the time of
removal. Poore v. American-Amicable Life Ins. Co. of Texas, 218 F.3d 1287, 1291 (11th Cir.2000),
overruled on other grounds, Alvarez v. Uniroyal Tire Co., 508 F.3d 639, 641 (11th Cir .2007) (per
curiam) (holding that a remand order is non-reviewable, regardless of the fact that the deprivation of
subject matter jurisdiction occurred post-removal). This rule prevents a plaintiff from amending his
complaint in a way that destroys diversity jurisdiction. See 14B Charles A. Wright, Arthur R. Miller &
Edward H. Cooper, Federal Practice and Procedure, 3723 (collecting cases). But that reasoning does
not apply to a Tapscott-based removal followed by a Court-ordered dismissal with prejudice of the
diverse defendant. Now that Plaintiffs are essentially starting anew against Fisher, in a case where no

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Background Allegations
8.

DR. MELGEN is a successful ophthalmologist, but he was not sophisticated in

securities matters.

He had, however, developed a friendship with FISHER, an extremely

successful and sophisticated investor. DR. MELGEN and FISHER had by late 2004 been friends
for several years. Mr. Fisher had been a guest in DR. MELGENS home in the Dominican
Republic twice. DR. MELGEN twice visited with FISHER in his home. The two men spoke
frequently and on occasion dined and socialized together.
9.

DR. MELGEN clearly respected, and valued, FISHERs insight regarding

financial matters. For example, when FISHER recommended that DR. MELGEN hire his
accountant, Lou Cohen, DR. MELGEN did so.
10.

As events would show Cohen was more loyal to FISHER than he was to DR.

MELGEN. This was demonstrated, for example, by Cohens stated intention to transfer to
FISHER free use of a jet, even though the hours of free use would accrue as the result of a
transaction entered into by DR. MELGEN. Cohen was also the accountant for one of the KL
funds for which John Kim was supposedly the trader. And Cohens wife was also employed by
FISHER.
11.

Rhonda Guinnazo was a partner of Louis Cohen in Cohens accounting firm who

also performed services for FISHER, especially in relation to FISHERs account at BAS. Upon
information and belief Guinazzo had a good relationship with Brett Speers who was the account
executive at BAS for the accounts of SFM and FISHER. MELGEN, on the other hand had no
relationship with Speers. Indeed, DR. MELGEN never spoke to Speers or any representative of
BAS until after DR. MELGEN and SFM had suffered their losses.
discovery has been taken, there is no reason for the Amended Complaint to remain in federal court.
Under these circumstances, remand is appropriate. 28 U.S.C. 1447(c).

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12.

Through their friendship, FISHER learned in late August of 2004 that DR.

MELGEN would be receiving a large sum of money from an investment. In September of 2004
FISHER encouraged DR. MELGEN to open an account at BAS and allow John Kim (Kim) to
trade securities with the money. FISHER told DR. MELGEN that Kim was managing a BAS
account for him. FISHER verbally praised Kims skill and acumen as a trader. FISHER
specifically represented that Kim was making him a lot of money. Plaintiff cannot say
specifically where these conversations occurred as FISHER and DR. MELGEN had numerous
conversations during this time concerning opening an account at BAS as well as other matters..
13.

DR. MELGEN considered FISHER to be an exceptionally successful

businessman. FISHERs representations regarding Kims skill, and excellent results, carried
great weight with DR. MELGEN, as FISHER knew and intended they would.
14.

In reliance upon FISHERs ringing endorsement of Kim and the results that Kim

had allegedly achieved for FISHER, DR. MELGEN agreed to open a BAS account and give Kim
trading authority.
15.

Unbeknownst to DR. MELGEN, FISHERs representations regarding Kim were

knowingly false. In particular, contrary to FISHERs assurances that Kim was making large
sums of money for him, FISHER was losing money in his BAS account. On September 17,
2004, eleven days before MELGEN made the first multi-million dollar transfer into BAS, BAS
notified FISHER of a $735,000 margin call on his account. On September 28, 2004, BAS asked
how FISHER planned to cover a $5,702,506 call in his account. None of this information was
shared with DR. MELGEN.

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16.

DR. MELGEN was also unaware that once he opened an account at BAS with

Kim as the authorized trader that Kim would be able to allocate the assets held in the account of
SFM to cover losses suffered by FISHER in FISHERS account at BAS.
17.

FISHER had the assistance of an attorney by the name of Zampino in opening the

account at BAS and it is reasonable to believe that either because FISHER was a sophisticated
investor or based upon the advice given to him FISHER was aware that Kim would be able to
allocate assets between the accounts of SFM and FISHER to benefit FISHER.

FISHER

therefore had a pecuniary interest in persuading DR. MELGEN to open an account at BAS
managed by Kim.
18.

The BAS account paperwork included an Institutional Account Agreement, a

Trading Authorization, and a Prime Broker Margin Account Agreement, executed copies of
which are attached hereto as Exhibits A through C. The Institutional Account Agreement set
forth the terms and conditions pursuant to which BAS would maintain an account for SFMs
purchases and sales of securities. The Trading Authorization designated Kim, and only Kim, as
an Authorized Agent to trade in the account. The Prime Broker Margin Account Agreement
contained additional provisions that addressed purchasing securities on margin.
19.

DR. MELGEN signed account paperwork, and, on September 28, 2004, BAS

established an account in the name of SFM HOLDINGS, LTD., account number 118-01222 (the
SFM Account).
20.

On September 28, 2004, DR. MELGEN, in continued reliance on FISHERS

misrepresentations and material omissions, wire transferred $10 million into the SFM Account,
and, on October 5, 2004, he transferred another $2.3 million into the SFM Account, while Kim
transferred $2.7 million that he later acknowledged belonged to DR. MELGEN.
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21.

BAS thereafter permitted Won Lee (Lee), the general partner of Shoreland

Trading, to make trades in the SFM Account. Based upon records provided by BAS Won Lee, in
fact, personally handled all trades in the SFM Account. DR. MELGEN did not authorize anyone
other than Kim to trade in the SFM Account. He was unaware of Lees or Shoreland Tradings
involvement.
22.

Whether the trading was done by Lee or Kim, Kim was the authorized trader for

both the FISHER and SFM accounts. This allowed Kim to aggregate the securities in both
accounts, trade them in bulk and then allocate the profits and losses. This ability to trade the
accounts in bulk and allocate the trades was possible due to the manner in which BAS set up the
accounts. BAS then improperly extended this trading authority to Won Lee.
23

BAS allowed Lees unauthorized activity to extend to bulk trading in a Shoreland

account using funds belonging to Plaintiffs and FISHER. Through this device, Lee was able to
allocate trades between FISHER and SFM.
24.

As mentioned earlier, FISHER was facing large margin calls when the SFM

Account was established. Lee allocated the majority of gains to FISHER, at the expense of
SFM, in order to cover the margin calls. Losses were disproportionately allocated to SFM, even
on securities purchased by FISHER before SFM opened its account at BAS. Between September
28 and October 18, 2004, there were many trades in which the allocation of gain or loss favored
FISHER and harmed SFM. In short, FISHERs fortunes at BAS rose as DR. MELGENs fell,
thus further demonstrating, at least circumstantially, a motive for FISHERS misrepresentations
and omissions.
25. FISHER must have known that he was not contributing assets to cover these margin
calls and that they were being covered by some other means. It is reasonable to infer that he
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knew his margin calls were being covered by SFMs assets. FISHER knew or should have
known that Kim was allocating gains to FISHERs account from trades made with SFMs assets
which were placed under Kims control as FISHER urged..
26.

From the first day of trading, the SFM Account was faced with substantial margin

27.

By early-to-mid October 2004, DR. MELGEN learned that the SFM Account had

calls.

suffered some losses and considered closing the SFM Account.

28.

In order to persuade DR. MELGEN not to close the account, Kim also agreed not

only to transfer the additional $2.7 million into the SFM Account, but to guarantee DR.
MELGENs principal.
29. On October 11 and 12 Won Lee engaged in illegal trades and lied to BAS concerning
those trades. As a result of these illegal trades and other actions by Lee and Kim in the SFM
account BAS ordered Lee, Kim and Shoreland Trading to leave BAS. BAS did not inform SFM
or MELGEN of any of the actions taken by Lee in SFMs account or the fact that BAS had
ordered SFMs account to be transitioned to another broker as a result of the improper actions
taken in the account
30.

On October 12, 2004, FISHER asked DR. MELGEN to meet with him and Kim.

FISHER and Kim took DR. MELGEN to Rachels, an adult entertainment establishment in Palm
Beach County. During the meeting, FISHER in the presence of John Kim verbally reiterated the
same knowingly false statements by which he had induced DR. MELGEN to open the account at
BAS and which he had repeated thereafter: Kim was doing a great job and making FISHER lots
of money.

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31.

These statements along with the statements made in September were intended to

and did mislead DR. MELGEN to believe that Kim was a skilled securities trader who was
making significant profits for FISHER. By omitting to tell DR. MELGEN that FISHER was in
fact incurring large margin calls FISHER further misled DR. MELGEN regarding Kims skill as
a trader. Based upon FISHERs continued endorsement and Kims promises, DR. MELGEN did
not close the SFM Account.
32.

DR. MELGEN was further assured by the fact conveyed by FISHER that Lou

Cohen was the CPA for DR. MELGEN, FISHER and the KL fund so that DR. MELGEN had
reason to expect that if there were a problem with John Kim he would be informed.
33.

On or about October 18, 2004, just days after the face-to-face meeting at

Rachels, FISHER transferred all of the funds, which totaled approximately $9 million, out of
BAS. FISHER was assisted in the transfer by Rhonda Guinazzo (Guinazzo), an accountant
who worked in the same firm as Lou Cohen. Guinazzo had been BASs contact person for
FISHER dating back to the creation of his account.
34.

FISHER never told DR. MELGEN that he was taking his money out of BAS.

Rather, his statements to DR. MELGEN created the misleading impression that FISHER
continued to repose trust and confidence in KIM and that DR. MELGEN should do the same.
Had FISHER timely disclosed this fact, DR. MELGEN would and could have protected the
funds remaining in the SFM account.
35.

After effecting the transfer of his money, FISHER stopped communicating with

DR. MELGEN. Significantly, leading up to mid-October, FISHER and DR. MELGEN spoke
frequently. But after October 18, FISHER rarely called DR. MELGEN, and communication
between the two ceased almost entirely.
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36.

In mid-to-late October 2004, Kim persuaded DR. MELGEN that the money in the

SFM Account should be transferred to an account under DR. MELGENs control at another
brokerage house, Wedbush Morgan Securities (Wedbush). DR. MELGEN signed paperwork
to effect the transfer to Wedbush. The papers were brought to Dr. MELGEN by John Kims
assistant, but those papers were never delivered to BAS or Wedbush Morgan.
37.

Instead, on November 2, 2004, Lee presented to BAS a forged letter (the Forged

Letter), on white paper without letterhead, purportedly signed by DR. MELGEN but not
witnessed or notarized, requesting that the assets in SFMs account be moved to a Shoreland
Trading account at BAS. Despite all of the red flags that had been raised regarding Lees
handling of funds at BAS, and the questionable appearance of the letter itself, BAS never
contacted DR. MELGEN or otherwise attempted to independently verify the genuineness of the
letter.
38.

On November 4, 2004, BAS transferred nearly all cash and securities in the SFM

Account to a Shoreland Trading account, thereby depriving SFM of control over its funds.
Although the Shoreland Trading account had been opened August of 2004, it had never
contained any assets until BAS transferred SFMs assets into it.
39.

While it is not alleged that FISHER participated in the presentation of the forged

letter to BAS, FISHERs fraudulent statements and omissions concerning Kim directly resulted
in Plaintiffs placing their assets in the control of Kim and leaving those assets in his control so
that they could be stolen by means of the forged letter.
40.

On or about November 18, 2004, SFMs funds, with a net value of more than

$7,000,000 in cash and securities were transferred to a Shoreland Trading account at Wedbush
Morgan. SFM had no record interest in the Shoreland Trading account at Wedbush.
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41.

BAS never informed Wedbush that they had ordered Lee to move his accounts

elsewhere. Wedbush representatives reasonably expected such notice under the circumstances as
did DR. MELGEN.
42.

Between November 18, 2004, and February 25, 2005, through trading losses, and

a $2 million outgoing transfer of funds on February 15, the balance in the Shoreland Trading
account at Wedbush was reduced to roughly $1 million.
43.

Throughout the period of September 2004 through at least December 2004

FISHER had multiple contacts and meetings with Won Lee and John Kim. The details of these
contacts are not known to Plaintiffs. FISHER also had multiple contacts with Lou Cohen who
was an accountant for one or more of the KL entities.
44.

At some point late in 2004 FISHER retained a forensic accountant by the name of

Willam Michaelson to investigate the KL entities. Although Plaintiff has no reason to believe
that this investigation concerned the investments at BAS, FISHER did not disclose to Plaintiffs
that he was undertaking an investigation of the entities for which John Kim was a trader or his
reason for doing so. Upon information and belief Michaelson expressed to FISHER his opinion
that the KL funds were a Ponzi scheme.
45.

During the latter months of 2004 MELGEN had discussions with Mel Nessel, a

very close friend of Mr. Fisher and another investor in the KL fund. Mr. Nessel expressed to
MELGEN that he smelled something fishy about KL and wanted an independent accountant to
examine the fund.
46.

Soon after speaking with Nessel DR. MELGEN brought to FISHERs attention

the discussions he had with Mel Nessel wherein Mr. Nessel expressed concerns regarding KL.
FISHER responded that DR. MELGEN should ignore Mr. Nessel, that DR. MELGEN should not
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listen to Mel Nessel. FISHER advised that DR. MELGEN should not speak with Mel Nessel
about KL and assured DR. MELGEN that he should not worry because everything was okay.
These conversations were in the latter months of 2004.
47.

FISHER did not disclose to MELGEN that FISHER had hired William

Michaelson to supposedly investigate KL or that Michaelson suggested KL was a Ponzi scheme.

Since John Kim was allegedly the trader for KL this was important information that contradicted
the earlier representations by FISHER as to Kims trading skills.
48.

FISHERs accountant, Lou Cohen also knew that FISHER had retained

Michaelson to investigate KL, but he did not disclose this fact to Dr. MELGEN. In addition,
Cohen attempted to borrow twenty five milllion dollars from Carlos Morrison for the benefit of
the KL fund shortlybefore the scheme collapsed. This need for funds is inconsistent with the
claims by John Kim, FISHER and Cohen concerning Kims great success as a trader. Cohen did
not disclose this information to MELGEN either.
49. Even though the losses at BAS were unrelated to the KL fraud, the trader at KL was
supposedly John Kim. Obviously, it would be important to DR. MELGEN to know if there was
reason to be concerned about John Kim. By reassuring DR. MELGEN and withholding the fact
that Michaelson had been hired FISHER again misled DR.MELGEN. At the time these events
were occurring DR. MELGEN did not know that KL was a Ponzi scheme.
50.

Because Ponzi schemes rely on a continuing influx of cash to maintain the

illusion of a successful investment, the investors who still have money in the scheme when the
scheme collapses suffer the greatest losses. In order to avoid losses an investor must withdraw
before the scheme collapses. If FISHER knew or suspected that KL was a Ponzi scheme, then it
was in his interest not to panic the other investors before FISHER could recover his investment
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in KL. This circumstance further supports the existence of an economic motive on FISHERS
part to deceive DR. MELGEN.
51.

Upon information and belief the funds and money paid into the KL scheme have

not been fully accounted for. Records in the possession of the KL Receiver show that there were
large transfers of funds offshore, but Plaintiffs did not know at this time whether those funds
were traced to their final recipient.
52.

During this time period, DR. MELGEN had repeatedly asked Kim about the

status of his funds but had not gotten a clear answer. Nevertheless, DR. MELGEN felt secure
since the money was guaranteed, and Cohen was the KL Financial Funds accountant. On or
about February 24, 2005, FISHER called DR. MELGEN and told him that both his money and
DR. MELGENs had been stolen. FISHER was the first person to report the loss to DR.
MELGEN. DR. MELGEN then called Kim, who confirmed that the money had been stolen,
although he claimed innocence and blamed Lee and Kims brother, Yung Kim.
53.

DR. MELGEN contacted BAS seeking information about the SFM Account.

BAS refused to provide any information, stating that only Lee was the person authorized to
receive such information. The response, which was incorrect, continued BASs history of
refusing to inform DR. MELGEN or SFM of significant irregularities and changes in the account
and treating the SFM Account as the property of Lee and Shoreland Trading. In fact, at the time,
SFM still had an account at BAS with $5,000.00 in it.
54.

Almost immediately DR. MELGEN asked FISHER if he could provide assistance

in determining what had happened to his money, and FISHER suggested that DR. MELGEN call
Guinazzo. Guinazzo was also, according to FISHER, trying to get information about the money
FISHER had at BAS.
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55.

Guinazzo made some effort, in late February 2005, to gather information for DR.

MELGEN. BAS responded by sending to Guinazzo the Forged Letter purportedly signed by
DR. MELGEN, which appeared to authorize the transfer of assets from the SFM Account to the
Shoreland Trading account.

BAS was not authorized to send the letter to Guinazzo.

Nevertheless, BAS provided this information, which it would not provide to DR. MELGEN, to
Guinazzo. Obviously, FISHER and Guinazzo had more influence with BAS than did DR.
MELGEN and SFM.
56.

Guinazzo forwarded this Forged Letter to DR. MELGEN. Naturally, the letter

suggested that the assets in the SFM account had all gone to Shoreland Trading. The natural
effect of this disclosure was to cause Plaintiffs to focus on Shoreland and the events subsequent
to the forged November 2nd letter, rather than the trading that occurred before November 2nd. In
this way, providing the letter to DR. MELGEN helped FISHER by taking MELGENs attention
away from the trading that occurred in September and October.

This constitutes further

circumstantial evidence of FISHERS intentional deception of DR. MELGEN to advance

FISHERS personal pecuniary interests.
57.

At the time Guinazzo forwarded the Forged Letter to DR. MELGEN, he was

desperately attempting to locate and recover his funds. His losses in the KL Fund and from the
SFM Account exceeded $20 million. It was crucial that DR. MELGEN immediately file suit if
he was to freeze any assets which could be located. Almost immediately upon learning of his
loss, DR. MELGEN brought in counsel who hurriedly prepared a lawsuit based upon documents
provided. Under the urgent and rushed circumstances, DR. MELGEN did not realize that the
letter was a forgery until after suit had been filed and he had an opportunity to more carefully

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review the letter. As a result, the lawsuit that he hurriedly filed on March 1, 2005 erroneously
treated the Forged Letter as authentic, causing further difficulties for DR. MELGEN.
58.

MELGEN again called FISHER during this period of time at the end of February

and beginning of March 2005 to ask if DR. MELGEN could see the statements for FISHERs
accounts at BAS. FISHER responded that DR. MELGEN would have to talk with FISHERs
lawyers. FISHERs lawyers were not cooperative, and failed to even return calls made to them.
59.

Thereafter, Guinazzo, without DR. MELGENs authorization or knowledge, and

apparently for FISHERs benefit, continued to seek information about the SFM Account. On
March 23, 2005, Guinazzo sent an e-mail to Brett Speer at BAS, with whom she had developed a
relationship while representing FISHER, requesting copies of SFM Holdings statements from
inception to close. If Speer sent the statements to Guinazzo. Guinazzo did not forward these
statements to DR. MELGEN or inform him of their receipt. Neither Fisher nor Guinazzo have
explained why Guinazzo requested DR. MELGENs statements from BAS shortly after DR.
MELGEN asked to see FISHERs statements.
60.

FISHER did not cooperate further in DR. MELGENs efforts to gather

information. To the contrary, FISHER has vehemently resisted Plaintiffs attempts to obtain his
account records. In fact, when in the state court action filed against John Kim Plaintiffs
subpoenaed records of FISHERs account at BAS, FISHER interrupted a vacation and flew from
St. Barts to Palm Beach to speak with DR. MELGEN. FISHER was remarkably upset by this
subpoena, and acted like a man with a great deal to hide. This is inconsistent with a claim that he
was without knowledge that his accounts would show he benefited from commingling of his
account with the account of SFM.

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61.

Plaintiffs did not learn until June 2008 that FISHER had directly and personally

benefitted from the allocations made on the trades at BAS. FISHER had previously refused to
cooperate with Plaintiffs requests for information, and both BAS and FISHER concealed
FISHERS role in the scheme that caused Plaintiffs losses. However, In May and June of 2008
the Receiver made records in its possession available for review by Plaintiffs as a result of a
settlement agreement negotiated with the Receiver concerning Plaintiffs Proof of Claim made in
the KL Receivership. This was the first opportunity Plaintiffs had to see records related to
FISHERs account at BAS. The review of those records disclosed to Plaintiffs the commingling
of the accounts of FISHER and the Plaintiffs, the losses FISHER was sustaining at the time he
was touting KIMs investing success, and the relationship between Plaintiffs investments and
FISHERs margin calls. Thus, for the first time in June 2008, Plaintiffs had evidence that
FISHER had deceived them.
62.

Nor did Plaintiffs appreciate until much later the fact that Lou Cohen had a close

relationship with FISHER, or the significance that may have had. Only after he suffered his
losses did DR. MELGEN learn of the communications between Guinazzo and BAS, that
Guinazzo apparently knew Brett Speers was the account executive for FISHER and SFM, and
that after leaving the employ of John Kim and Won Lee their executive assistant went to work
for FISHERs son.
63.

Plaintiffs ultimately lost the full $15 million invested at BAS upon FISHERs

64.

Plaintiffs have performed all conditions precedent to bringing suit, those

urging.

conditions have occurred, and/or the obligation to perform has been waived or otherwise
forgiven.
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COUNT I - FRAUD
(FISHER)
65.

Plaintiffs reallege paragraphs 2 through 64.

66.

Beginning in September, 2004 FISHER made material representations to DR.

MELGEN, concerning funds managed by Kim at BAS, with the intention that DR. MELGEN
rely upon them in moving funds to BAS. FISHER told DR. MELGEN that Kim was managing a
BAS account for him. FISHER verbally praised Kims skill and acumen as a trader. FISHER
specifically represented that Kim was making him a lot of money. Plaintiff cannot say
specifically where these conversations occurred as FISHER and DR. MELGEN had numerous
conversations during this time. The fraud and FISHERS participation in it is believed to have
begun in September 2004.
67.

FISHER made additional false representations to DR. MELGEN on October 12,

2004 to encourage DR. MELGEN to leave his funds and securities under John Kims control. At
that time, FISHER, in the presence of John Kim, verbally reiterated that Kim was doing a great
job and making FISHER lots of money.
68.

At the time FISHER made these representations to DR. MELGEN, he knew they

were false.
69.

FISHER not only made these misrepresentations, but failed to disclose material

information concerning his BAS account, including the substantial margin calls, the use of SFM
funds to cover these margin calls, the allocation of gains and losses to benefit FISHER and
damage Plaintiffs, and FISHERs transfer of his funds out of BAS. FISHER also withheld from
DR. MELGEN that he had hired a forensic accountant to investigate a fund traded by Kim, and

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that the forensic accountant declared the fund to be a Ponzi scheme, but to the contrary assured
MELGEN there was nothing to worry about.
70.

DR. MELGEN and SFM reasonably relied upon FISHERs representations in

moving money to BAS and leaving it there long enough to be stolen.

71.

FISHERs misrepresentations and failures to disclose provided substantial

assistance to those who stole Plaintiffs money. Upon information and belief it is alleged that as
a direct result of Plaintiffs opening an account at BAS and authorizing Kim to trade it as
recommended by FISHER, FISHER benefited in the amount of approximately $9,000,000 in
trades allocated to his account.
72.

As a direct and proximate result of FISHERs fraudulent misrepresentations,

Plaintiffs suffered damages.

WHEREFORE, Plaintiffs ask that this Court enter judgment against FISHER for
compensatory damages, prejudgment interest, and costs, plus such further relief as may be just.
Plaintiffs reserve the right to seek punitive damages upon a proper showing.

COUNT II - CONVERSION
(FISHER)
73.

Plaintiffs reallege paragraphs 2 through 64.

74.

Kim and or Lee without authorization engaged in bulk trades through an omnibus

account, and then allocated good trades to FISHER and bad trades to Plaintiffs.
75.

FISHER received benefits from these improperly allocated trades, as funds from

unauthorized trades and improper allocations that belonged to Plainitffs were placed into his
BAS account.
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Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 18 of 26

76.

On July 31, 2008, Jack Scarola, acting as counsel for Plaintiffs, wrote to Fishers

counsel advising them of the losses by Plaintiffs. Even after having been informed that property
belonging to DR. MELGEN was now in his possession. FISHER made no effort to return those
assets.
77.

On or about July 31, 2008 if not earlier, FISHER converted to his own use stocks

and cash that were then the property of Plaintiffs of the value of approximately $9,000,000.00,
which value cannot be more precisely determined without discovery.
78.

FISHER has exercised and continues to exercise dominion over the funds and

securities that rightfully belong to Plaintiffs

WHEREFORE, Plaintiffs ask that this Court enter judgment against FISHER for
compensatory damages, prejudgment interest, and costs, plus such further relief as may be just.
Plaintiffs reserve the right to seek punitive damages upon a proper showing.

COUNT III - CONSPIRACY

(FISHER)
79.

Plaintiffs reallege paragraphs 2 through 64.

80.

FISHER conspired with Kim, Lee, Shoreland Trading and BAS to mislead DR.

MELGEN, and conceal the truth from him, concerning the fraud and conversion of SFM funds.
The agreement between the conspirators was a tacit one. BAS and FISHER knew that Kim, Lee,
and Shoreland were frauds, but concealed that information so they could protect and advance
their own interests.

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Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 19 of 26

81.

In September, 2004 Fisher had substantial margin calls in his account. BAS was

in communication with Lee concerning how those margin calls would be covered. BAS was
anxious regarding these calls, one of which was for $5,702,506.00.
82.

On September 27, 2004, one day before SFM wired $10,000,000.00 into its

account at BAS, there was an email from Bret Speer, an account executive at BAS, to Won Lee
asking him, What is the plan for the $5,702,506 Fed call due in a couple of days? Will sell to
cover it or bring in money.
83.

In the face of those demands, Lee responded that he had a new client who would

be bringing $10,000,000 to BAS. That client was SFM.

84.

In an email dated September 28, 2004, Mr. Brett Speer, an officer with BAS

wrote to Afi Lowery, another BAS official, to advise of the receipt of the funds deposited by
SFM. In his email Speer refers to the account as Shoreland Trading. The information in the
emails, coupled with the limited information obtained from SFM and the omnibus accounts
indicates that upon receipt of SFMs money those funds became commingled with money
already in the Shoreland account.
85.

Attempts by Won Lee to allocate losses between the SFM and FISHER accounts

and knowledge of these attempts by BAS officials can be seen in an email sent September 29 th at
5:01 PM from Won Lee to Speer where Lee states trying to allocate todays trades to SFM but
could not see account in the order Management. Please allocate all executed trades to SFM
today.
86.

On September 30, 2004, at 7:28 am there is an email from bank official Speer to

Lee which states, Call for 5,702,506 is due today. You will need to sell/cover twice that amount
to meet it. Also, there will be a call for about 9.5 in the SFM account based on yesterdays
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Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 20 of 26

trading. Later that day at 1:04 PM Speer sends Lee another email stating, Calculated wrong on
the SFM account, the call is due for 5,051,997, and is due on 10/6.
87.

In another email on September 30, 2004 at 3:30 PM Speers sense of urgency

with the naked sales is even more apparent when he writes to Won Lee, Please mark your
trades for processing in the Fisher account as soon as you can, my margin department is getting a
little nervous since its a big call.
88.

SFMs assets could not have been commingled with FISHERs assets in the

Shoreland account without the assistance of BAS who put SFM into a prime broker account with
Shoreland as the manager. This was done even though there was no apparent reason why SFM
would need a prime brokerage account, and SFM did not authorize Shoreland to be its manager.
Indeed, BAS never had any contact with SFM or MELGEN.
89. Once BAS had improperly opened the SFM account as a prime account with
Shoreland as the manager Lee (or Kim) was able to trade the SFM assets and FISHER assets in
the Shoreland account.
90.

Lee began commingling these assets immediately. The scheme was furthered by

allocating, and in some cases reallocating trades to benefit FISHER.

91.

BAS was well aware that these allocations were taking place and in some cases

BAS personnel assisted in making the allocations. By doing so, BAS protected itself at the
expense of SFM. This is clear by the manner in which BAS handled the account once it caught
Lee engaging in illegal trades. Rather than freeze the account, as it had a right to do, BAS merely
limited trading to closing transactions so that Lee could cover the margin in the account and
cover the losses sustained in its illegal trades. Of course, BAS never informed SFM or DR.
MELGEN of these illegalities or the limits imposed on its account.
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92.

BAS maintained secrecy concerning the wrongful actions of Kim, Lee, Shoreland

Trading and BAS even after DR. MELGEN learned that he had lost his assets. BAS actively
concealed from SFM the transactions in the Shoreland omnibus account as well as the fact that
profits had been allocated to FISHER. BAS even went so far as to violate orders issued by the
Circuit Court in and for Palm Beach County rather than turn over information concerning the
omnibus account.
93.

BAS was also concealing from Plaintiffs information concerning FISHER,

including FISHERs account statements. FISHER too was withholding this information. It is
reasonable to presume that the bank and FISHER were in communication regarding these
matters.
94.

FISHER knew at the time SFM opened its account that he was incurring large

margin calls in his account. He did not advise DR. MELGEN of these facts. To the contrary, he
cooperated with John Kim to meet with DR. MELGEN and to reassure him that all was well on
October 12, 2004.
95.

At the time that FISHER recommended that DR. MELGEN open the account at

BAS to be managed by Kim FISHER also put DR. MELGEN in touch with a lawyer named
Zampino for the purpose of moving his assets offshore. DR. MELGEN understood that
Zampinos function was to assist FISHER to structure his investments for the purpose of
protecting them from US taxes. DR. MELGEN declined to establish offshore accounts.
96.

Upon information and belief FISHER recommended this course of action so that

DR. MELGEN would be in a vulnerable legal position if he discovered his losses.

97.

Ultimately, several million dollars were moved offshore by Won Lee. The

ultimate disposition of those funds is unknown to Plaintiff.

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Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 22 of 26

98.

During the time that FISHER was investigating KL with the help of a forensic

accountant he never disclosed the investigation to DR. MELGEN. To the contrary he tried to
persuade DR. MELGEN that concerns being raised by Mel Nessel about KL were unwarranted.
Yet during this time FISHER was meeting with Kim and Won Lee as well as the forensic
accountant William Michaelson, who told FISHER, in no uncertain terms, that the KL fund was
a Ponzi scheme.
99.

FISHER was also meeting with his accountant, Lou Cohen, who also acted as an

accountant for one of the KL funds. At some time before Won Lee fled and the KL fund
collapsed Cohen attempted to borrow twenty-five million dollars from Carlos Morrison for the
benefit of the KL fund, thus indicating knowledge that the fund was not the great success that it
had been touted to be.
100.

During the time that Michaelson was trying to conduct his investigation, FISHER

had meetings with Kim and Lee, but without Michelson.

101.

It was through the tacit cooperation of FISHER, BAS, Kim, Lee and Shoreland

Trading that FISHER was able to cover his losses at BAS with the investments by SFM.
102.

FISHER committed overt acts in furtherance of the conspiracy, including (a)

repeatedly, falsely stating that Kim was an excellent trader who was making him a lot of money,
(b) concealing the margin calls in his account, the use of SFM funds to cover these margin calls,
the improper allocations of gains and losses from trades made in the omnibus account, and the
transfer of his funds out of BAS, and (c) refusing to cooperate in Plaintiffs efforts to investigate
the fraud and conversion in early 2005.
103.

As a direct and proximate result of FISHERs misconduct, Plaintiffs suffered

damages.
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Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 23 of 26

WHEREFORE, Plaintiffs ask that this Court enter judgment against FISHER for
compensatory damages, prejudgment interest, and costs, plus such further relief as may be just.
Plaintiffs reserve the right to seek punitive damages upon a proper showing.

COUNT IV - NEGLIGENT MISREPRESENTATION

(FISHER)
104.

Plaintiffs reallege paragraphs 2 through 64.

105.

FISHER made materially false statements to DR. MELGEN concerning the status

of his account at BAS, which false statements he never corrected.

106.

FISHER had a pecuniary interest in encouraging Plaintiffs to invest at BAS with

Kim as the authorized trader in the account. Specifically, FISHER was facing margin calls and
losing on the trades being made by John Kim.
107.

FISHER was a sophisticated investor and either knew or should have known of

the losses in his account and the margin calls, as well as the fact that the calls were covered by
some means other than FISHER investing sufficient additional funds to do so.
108.

FISHER was negligent in making and failing to correct the statements, because, in

the exercise of reasonable care under the circumstances, he should have known the statements
were false.
109

FISHER intended that DR. MELGEN would rely on the false statements.

110..

DR. MELGEN reasonably and justifiably relied on the false statements in moving

money to BAS and keeping it there.

111.

As a direct and proximate result of FISHERs negligent misrepresentations,

Plaintiffs suffered damages.

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Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 24 of 26

WHEREFORE, Plaintiffs ask that this Court enter judgment against FISHER for
compensatory damages, prejudgment interest, and costs, plus such further relief as may be just.
Plaintiffs reserve the right to seek punitive damages upon a proper showing.
Plaintiffs demand trial by jury as to all claims asserted herein.

Dated: October 7, 2009

Respectfully submitted,
Searcy Denney Scarola Barnhart & Shipley, P.A.
Attorneys for Plaintiffs
2139 Palm Beach Lakes Boulevard
West Palm Beach FL 33409
Tel: (561) 686-6300; Fax: (561) 383-9451
By: /s/ John Scarola
Patrick E. Quinlan (FBN 750263)
peq@searcylaw.com; ajc@searcylaw.com
John Scarola (FBN 169440)
mep@searcylaw.com
Lawrence Duffy ((FBN 281328)
lwduffy@bellsouth.net
Law Office of Lawrence Duffy, P.A.
Post Office Box 243699
Boynton Beach FL 33424
Tel: (561) 649-7488
Attorneys for Plaintiffs

CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on October 7, 2009, I electronically filed the foregoing
document with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is
being served this day on all counsel of record or pro se parties identified on the attached service list
in the manner specified, either via transmission of Notices of Electronic Filing generated by
CM/ECF or in some other authorized manner for those counsel or parties who are not authorized to
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Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 25 of 26

receive electronically Notices of Electronic Filing.

s:/ John Scarola

John Scarola, Esq.

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Case 9:08-cv-81177-KLR Document 174 Entered on FLSD Docket 10/07/2009 Page 26 of 26

SERVICE LIST
Jeffrey C. Schneider, PA
Florida Bar No. 933244
jcs@tewlaw.com
Patrick J. Rengstl, Esq.
pjr@tewlaw.com
Florida Bar No. 0581631
Tew Cardenas LLP
1441 Brickell Avenue, 15th Floor
Miami FL 33131
Tel: (305) 536-1112; Fax: (305) 536-1116
Attorneys for Jerome Fisher

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