Article

Note: A small securities broker-dealer and investment bank owned by Fred Newcomb named Newcomb & Company (collectively Investment Bank) facilitated a series of business agreements between Theodore L. Hansen (Seller) and Native American Oil Refinery Company (Buyer). When Seller sold its interest in various properties to Buyer, financing was secured by use of existing collateral combined with assignment of guarantees and a standby letter of credit, both purportedly issued by Bank of Negara Indonesia (Bank) from its New York Branch to the Seller. The Seller regarded the guarantees and letters of credit as legitimate after "he spoke via telephone with officers of [Bank], who confirmed the existence and validity of the guarantees and vouched for [Buyer's] financial condition." Investment Bank's role in the transaction consisted of some due diligence, negotiating the transaction, and holding the standby LC and guarantees. When Buyer failed to pay, Seller presented documents to Bank in order to draw on the guarantees and standby. Bank refused to honor any of the financial instruments on the grounds that they were fraudulent and not issued by Bank or any of its employees.

Seller then sued 35 defendants, including Investment Bank, on various counts. Investment Bank moved for summary judgment. The United States District Court for the District of Utah, Benson J., granted its motion.

Seller claimed that if the dishonored guarantees and letters of credit issued by Bank were fraudulent, a plethora of charges related to fraud and conspiracy give rise to liability for Investment Bank. The Judge reasoned that Seller failed to introduce any documentary evidence that raised a genuine issue as to the existence of injuries suffered, or any specific evidence of false statements by Investment Bank. Additionally, the Judge noted that Investment Bank only interacted with Seller after the deal was made, rendering the inducement element of fraud extremely unlikely. The Judge stated that a reasonable jury could not find clear and convincing evidence that Investment Bank was knowingly or recklessly fraudulent, and that seller presented insufficient facts to support the claims of fraud and conspiracy among others.

See also Hansen v. PT Bank Negara Indonsia (Persero), 601 F.3d 1059 (10th Cir. 2010) [USA], summarized in 2011 Annual Review on the following page.

[JEB/tss]

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