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Note: Dorchester Financial Holdings Corporation (Fraudster) alleged that it had entered into an agreement with Banco BRJ, S.A. (Alleged Issuer), a Brazilian bank, and African Capital Partners (Third Party), in which Alleged Issuer agreed to issue a USD 100,000,000 standby letter of credit in favor of Fraudster. Following Fraudster’s claimed payment of USD 500,000, Alleged Issuer allegedly issued a LC at the request of Third Party for USD 250,000,000 (instead of USD 100,000,000) and Alleged Issuer allegedly demanded an additional fee of USD 250,000 from Fraudster. Following Alleged Issuer’s refusal to honor the LC on the ground that it had not issued it, Fraudster sued Alleged Issuer for breach of contract.

A default judgment was granted when Fraudster first sued Alleged Issuer, but it was later vacated on Fraudster’s motion since the judgment apparently could not be enforced in Brazil due to insufficient service of process. Fraudster again sued Alleged Issuer for breach of contract, effectively serving Alleged Issuer. The United States District Court for the Southern District of New York, Wood, J., granted Alleged Issuer’s motion to dismiss for lack of personal jurisdiction over Alleged Issuer. On appeal, the United States Court of Appeals for the Second Circuit vacated and remanded, concluding that it was inappropriate for the trial court to dismiss Fraudster’s action for lack of personal jurisdiction absent an evidentiary hearing when Fraudster had made a prima facie showing of jurisdiction. On remand, the United States District Court for the Southern District of New York initially denied Alleged Issuer’s remaining motions to dismiss. Following discovery, the United States District Court for the Southern District of New York, Wood, J., granted Alleged Issuer’s motion for summary judgment.

Alleged Issuer provided both sworn declarations and deposition testimony denying any association with both Fraudster and Third Party.

In addition, Alleged Issuer’s expert witness addressed several factors of the alleged transaction which indicated that the LC was fraudulent. According to Alleged Issuer’s expert witness, the alleged agreement lacked any consideration for Alleged Issuer’s issuance of the LC, and it contained terminology that would not appear in a LC. Because the LC’s value was approximately equal to Alleged Issuer’s then entire asset base, the Judge concluded that there was no “plausible commercial reason” for the alleged agreement.

The Judge noted that numerous characteristics of the LC also suggested it was fraudulent. Alleged Issuer offered evidence demonstrating inconsistencies with the signatures appearing on the LC. Alleged Issuer’s expert witness testified that the absence of an application submitted by an applicant to Alleged Issuer for the LC was contrary to LC practice and regulatory policy and thus indicated Alleged Issuer would not have issued the LC. The terms of the alleged agreement were inconsistent with the terms of the LC, and the phrase “due upon maturity but prior to the day of expiration” utilized language which “appear[s] frequently in letters of credit that are fraudulent.” Finally, Alleged Issuer offered further evidence indicating fraud, namely that the alleged LCs were issued in English, whereas the majority of LCs issued by Alleged Issuer were in Portuguese. The use of inconsistent font and numbering systems, and the appearance of the incorrect seal, also indicated fraud.

Fraudster attempted to refute Alleged Issuer’s evidence of fraud by producing a SWIFT MT-999 message allegedly sent by Alleged Issuer confirming the issued LC. However, the individualized code appearing on the LC was different than Alleged Issuer’s SWIFT code and the message was sent through an unauthenticated MT, different than those used for letters of credit. Alleged Issuer’s expert witness testified that SWIFT messages sent through general message categories exhibiting “99” formats are unauthenticated and “relatively easy to forge.”

Fraudster failed to raise any disputed material facts with its remaining evidence. Fraudster’s conclusory allegations regarding the validity of the documents were unsupported by any evidence apart from the documents themselves. Accordingly, the Judge concluded Alleged Issuer was entitled to judgment as a matter of law.

[MJK]

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