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Note: E.L. Archie Payer (Victim), a senior citizen residing in the U.S. State of New Jersey, was approached by Keith Doss (Fraudster's Associate), who had cultivated a personal relationship by email and telephone and eventually, with the help of A.J. Berrones (Fraudster), persuaded Victim to invest USD 275,000 in exchange for "a document [that] would be issued with a face value of 100 million dollars of which a substantial part, 66 million dollars could be used by [Victim]."

Fraudster and his Associate represented that the scheme involved "'a well-known, well-regarded international banking institution' which provided funding to small businesses" entitled Estrategia Investments, S.A., a supposedly Brazilian bank. The Brazilian bank was to have "issued the Letter of Credit to Metropolitan, a New Zealand corporation, in favor of Backstage Assets, a Swiss company". After the funds were wired to Fraudster, Victim "received a letter of credit dated November 24, 2010, bearing Estrategia's name."

The text of the LC read:

"MR. ANDRE PESENTI, DIRECTOR. WE NEED TO DELIVER OUR AUTHENTICATED MESSAGE FOR YOUR ACCOUNT HOLDER. S B L C N U M B E R : E S T R S L C 1 0 11 9 0 . BENEFICIARY - BACKSTAGE ASSETS MANAGEMENT AG.

REF: CANADA FOUNDATION/DR. W. TAO. CLIENT ID: 401 506 51. IBAN NO: CH850825 3000 0153 88059 USD. CUSTODY ACCOUNT: XXXX25 42.

AMOUNT - TWO HUNDRED MILLION USDOLLARS.

ISSUED- NOVEMBER 24, 2010.

MATURITY- DECEMBER 24, 2011.

TRANSACTION CODE: IDI-20M-11-1410-001.

WE SHALL BE THANKFUL TO YOU FOR THE ACCEPTANCE OF OUR RMA REQUEST ASAP. OUR SYSTEM HAS BEEN ACTIVATED FOR YOU. THIS IS OUR REQUEST - REMINDER.

REGARDS ESTRATEGIA INVESTIMENTOS S.A."

When Victim attempted to rely on the LC, he was unable to do so.

During this period, Fraudster "instruct[ed] [Victim] not to contact other persons or parties during the transaction", claimed that Victim "had contacted '[Fraudster's] banker without authorization'", and provided reassurances. Fraudster's Associate informed Victim that Fraudster was "currently working on getting procedures for [letters of credit]".

Realizing that he was a victim of commercial fraud, Victim sued Fraudsters, those associated with the Brazilian bank (Foreign Bankers), and several other parties in U.S. federal court in New Jersey. Foreign Bankers moved to dismiss for both lack of personal jurisdiction and for failure to state a claim and Fraudster moved to dismiss for lack of personal jurisdiction. The U.S. District Court for the District of New Jersey, Bumb, J., dismissed as to the Foreign bankers but denied the motion as to the Fraudsters.

As to the Foreign Bankers, the key issue is whether "the issuance of a letter of credit by a non-resident bank, such as Estrategia, payable on presentation at an out-of-state forum is insufficient to establish personal jurisdiction". The Judge noted that it would have been insufficient contact to establish personal jurisdiction "even when the beneficiary of the letter of credit is a resident." In this case, the beneficiary was a Swiss company. Victim then argued that the Foreign Bankers established jurisdiction through an agency relationship with the New Zealand Applicant. The Judge disagreed, stating that "an agent may only bind his principal for acts that are within his actual or apparent authority." Victim did not allege any facts showing that Victim believed that the New Zealand company was the Foreign Bankers' agent.

As to Fraudster, although he neither had offices nor conducted business in New Jersey, there nonetheless was a basis for specific jurisdiction (jurisdiction solely for the purposes of this case) over the Fraudster because Fraudster was in direct communication with Victim and "personally solicited [Victim] and assured him of the security of the transaction." Fraudster asserted that he was protected from personal liability by his limited liability corporation (LLC), arguing that all contacts made with Victim were through and on behalf of his LLC. However, Victim alleged that there was a unity of interest between Fraudster and LLC sufficient to pierce the corporate veil in which the "circumstances . . . indicate that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice." The contacts of Fraudster's Associate as an agent of Fraudster with the Victim were also sufficient for the Judge to justify personal jurisdiction at this stage of the proceeding.

[MJB]

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.