Full opinion text
ORDER JED S. RAKOFF, District Judge. On June 3, 2010, Special Master Daniel J. Capra issued a Report and Recommendation in the above-captioned case recommending that the Court adopt the following conclusions: (1) The Trustee has adequately pled a claim for fraudulent inducement as to those FX Customer deposits made after the 2004 leveraged buyout (“LBO”). (2) The Trustee has not adequately pled a claim for fraudulent inducement as to those FX Customer deposits made before the 2004 LBO. (3) The Trustee has not adequately pled a claim for breach of fiduciary duty. (4) The Trustee has not adequately pled a claim for conversion. (5) The Motion to Dismiss the Fifth, Sixth and Seventh Claims for Relief against Mayor Brown should be granted. Those dismissals should be with prejudice because the Trustee cannot allege facts that would create a plausible claim that Mayer Brown substantially assisted the customer scheme. (6) The Motion to Dismiss the Fifth Claim for Relief against Grant Thornton should be denied with respect to those FX Customer deposits with RCM made after the 2004 LBO. (7) The Motion to Dismiss the Fifth Claim for Relief against Grant Thornton should be granted with respect to those FX Customer deposits with RCM made before the 2004 LBO. The dismissal should be with prejudice because the Trustee cannot show that the primary wrong caused any injury. (8) The Motions to dismiss the Sixth and Seventh Claims for Relief against Grant Thornton should be granted. The dismissals should be with prejudice because the Trustee cannot allege facts that would create a plausible claim of a primary wrong. See 06/03/2010 R & R at 41-42. After plaintiff timely submitted objections to the Special Master’s recommendations and defendants responded thereto, the Court heard oral argument on July 28, 2010. Having now reviewed the matter de novo, the Court finds itself fully persuaded by the Special Master’s thorough and well-reasoned Report and Recommendation and hereby adopts it in full as if incorporated herein. In particular, the Court finds no reason to disturb the conclusions of the Honorable Judge Gerard E. Lynch as set forth in Kirschner v. Bennett, 648 F.Supp.2d 525 (S.D.N.Y.2009). The law of the ease doctrine “posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.” Liona Corp. v. PCH Assocs. (In Re PCH Assocs.), 949 F.2d 585, 592 (2d Cir.1991) (quoting Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 815-16, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988)). This “doctrine is admittedly discretionary and does not limit a court’s power to reconsider its own decisions prior to final judgment.” Virgin Atl. Airways, Ltd. v. Nat’l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.1992), cert. denied, 506 U.S. 820, 113 S.Ct. 67, 121 L.Ed.2d 34 (1992). Still, as noted by the Second Circuit, “the major grounds justifying reconsideration are ‘an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice.’” Id. (quoting 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 4478 at 790 (1981)). No such circumstances are present in this case, however. Accordingly, the Court affirms and adopts in all respects the conclusions set forth in the Report and Recommendation of June 3, 2010. SO ORDERED. REPORT AND RECOMMENDATION OF THE SPECIAL MASTER DANIEL J. CAPRA, Special Master. This is a report and recommendation to Hon. Jed S. Rakoff concerning motions brought by the defendants Grant Thornton, LLP, Mayer Brown LLP and Mayer Brown International LLP (collectively, the “Professional Defendants”) to dismiss the complaint filed against each by Marc S. Kirschner as Trustee of the Refco Private Actions Trust (“Trustee” or “Private Actions Trustee”). The Trustee originally filed this action in New York State Supreme Court on behalf of Refco’s foreign-exchange customers (the “FX Customers”), asserting claims under New York law against certain Refco insiders, professionals, and advisors for, inter alia, breach of fiduciary duty, fraud, and conversion. See Kirschner v. Bennett, 2008 WL 1990669 (S.D.N.Y. May 7, 2008) (denying Trustee’s motion to remand or abstain on the ground that the case is “related” to Refco’s Chapter 11 bankruptcy). The Trustee alleges that the FX customers collectively suffered losses totaling more than half a billion dollars when insiders at Ref-co diverted assets from their accounts at Refco Capital Markets (“RCM”) in order to bankroll the Refco fraud. On August 25, 2009, Judge Lynch granted the Professional Defendants’ motions to dismiss the original complaint, granting the Trustee leave to replead. Kirschner v. Bennett, 648 F.Supp.2d 525, 528 (S.D.N.Y.2009) (cited herein as “Op.”). This report and recommendation addresses the motions by the Professional Defendants to dismiss the Amended Complaint. 1. Introduction A. Facts The original complaint, all claims of which were dismissed by Judge Lynch in his August, 2009 opinion, centers around what has been called “the Refco fraud.” See e.g., Op. at 529. The facts surrounding the fall of Refco have been recounted in a number of opinions by Judge Lynch, see, e.g., id. at 528-531; Kirschner v. Grant Thornton, 2009 WL 1286326 (S.D.N.Y.), as well as in Reports and Recommendations of the Special Master in Krys v. Sugrue. Familiarity with the basics will be assumed, but a short discussion of the Trustee’s allegations most pertinent to the FX Customer claims is appropriate. Refco’s controlling officers (collectively, the “Insiders”), with the assistance of the Professional Defendants, orchestrated “a complex fraudulent scheme to artificially enhance Refco’s performance and conceal Refco’s true financial condition.” Op. at 530. Refco carried a large uncollectible debt from a related company, Refco Group Holdings, Inc. (“RGHI”), and hid this debt through a series of so-called “round trip loans” taking place just before and after reporting periods. Id. at 529-30. Judge Lynch refers to the round-trip loans — as well as other efforts to hide the RGHI debt — as part of the “receivables scheme.” (Op. at 545). The goal of the receivables scheme was to allow Refco to continue operations until the Insiders could cash out. (Amended Complaint ¶¶ 1-3). By concealing Refco’s true financial condition, the Refco insiders were able to effectuate a leveraged buyout (“LBO”) in August 2004 and an initial public offering (“IPO”) in August 2005. Id. (These acts are also part of the receivables scheme according to Judge Lynch.) Together, these events allowed the Refco Insiders to cash out their holdings in Refco at a time when, unbeknownst to the public, Refco affiliates owed RCM approximately two billion dollars. Id. Additionally, the LBO caused Refco to acquire $1.4 billion of bank and bond debt which became senior to the debt that Refco-controlled entities owed to RCM, despite representations in the Offering Circular that it was “effectively junior to all existing and future liabilities.” Id. The debt acquired in the LBO “altogether foreclosed repayment of ROM’s customer assets, including those belonging to the FX customers.” (Amended Complaint ¶ 7). The cashing-out depended on maintaining business operations, and that meant obtaining funds to operate Refco and its affiliates. (Amended Complaint 12). Ref-co obtained those funds in large part by misappropriating RCM customer assets, including funds entrusted to RCM by the FX customers. Id. All but a de minimis portion of the customer assets were diverted from RCM to Refco Capital LLC (“RCC”) under the guise of loans to “customers” that were in fact intercompany, related parties that could not repay what was taken. Id. Judge Lynch refers to the siphoning of customer funds as the “customer scheme.” (Op. at 545). B. The Margin Annex The Margin Annex is a subsection of the customer agreement that FX Customers entered into with RCM. It governed RCM’s use of and access to customer margin. Specifically, the Margin Annex permitted RCM to “loan, pledge, hypothecate or otherwise use or dispose of such cash, securities, and other property free from any claim or right, until settlement in full of all Transactions entered into pursuant to the [FX] agreement.” Op. at 535 (citing Rand Dec. Ex. 1 at 24). The Margin Annex further provided that, pursuant to such use, “[RCM]’s sole obligation shall be to return to [FX Customers] such cash, like amounts of similar cash, securities and other property (or the cash value thereof in the event of any liquidation of collateral) to the extent they are not deemed to be collateral to secure Transactions entered into pursuant to this Agreement with any Refco Entities or have not been applied against obligations owing by [FX Customers] to Refco Entities, whether as a result of the liquidation of positions and any Transactions entered into pursuant to this Agreement or otherwise.” Id. Of critical importance to the instant motions, Judge Lynch has taken an expansive view of what the Margin Annex permitted RCM to do with its customers’ assets. See Op. at 538. As the law of the case, Judge Lynch’s construction determines how the Margin Annex must be read in evaluating the motions to dismiss. See, e.g., United States v. Vigneau, 337 F.3d 62, 67 (1st Cir.2003) (“law of the case” doctrine is a “prudential principle that precludes relitigation of the legal issues presented in successive stages of a single case once those issues have been decided”). Prior to the pleading and dismissal of the original complaint in this case, Judge Lynch analyzed and interpreted the Margin Annex in In re Refco Capital Markets, Ltd. Brokerage Customer Securities Litigation, VR Global Partners, L.P. v. Bennett et al., 586 F.Supp.2d 172 (S.D.N.Y.2008) (RCM II), a case in which customers similarly situated to the FX Customers, and with a virtually identical customer agreement, alleged that RCM engaged in deceptive conduct. Judge Lynch construed the Margin Annex to mean that if an account contained any amount of outstanding margin, RCM was permitted to “use or dispose of’ any other customer assets in the account in any way it saw fit, whether or not the assets disposed of were actually margin. RCM II, at 183-94 (“[T]he express terms of the Customer Agreement and Trade Confirmation, ... taken together, authorized RCM to ‘use or dispose of “all” of the customer’s property — whether that was collateral against a margin balance, or, “other [non-collateral] property”’ — whenever a margin loan was outstanding in the customer’s account.”). Thus, if RCM used customer monies in excess of the value of a customer’s margin balance, that would not be deceptive or fraudulent conduct as it was permitted by the terms of the Margin Annex. Id. RCM’s use of customer funds was nevertheless contingent upon the existence of at least some margin balance. Id. at 184, n. 16 (rejecting defendant’s contention that Paragraph One of the Trade Confirmation authorized RCM to use Customer securities regardless of the existence of a margin balance). Judge Lynch also held that when “RCM ‘loan[s], pledge[s], hypothecate^] or otherwise use[s]’ a security owned by a customer with an outstanding margin loan, that property has been ‘dispose[d] of,’ and RCM’s ‘use’ of that security effectively ends after consummation of that transaction.” Id. at 185. Thus, RCM’s failure to reconvey securities to customers at the time of RCM’s bankruptcy did not necessarily mean, as the RCM II Plaintiffs argued, that RCM was using their securities in contravention of the parties’ understanding pursuant to the Customer Agreement. Id. In fact, the money may have been “disposed of at a time when the customer had a margin balance.” The effect, then, is that while “[t]he fact that RCM could not reconvey all of plaintiffs’ property in October 2005 may be a breach of its contractual obligation to ‘return’ to plaintiffs all of the property in their accounts” it was not necessarily deceptive or fraudulent. Without an allegation that RCM used their securities at a time when plaintiffs had no outstanding margin loans, “any disposal of plaintiffs’ assets would not have violated the parties’ understanding.” Id. According to RCM II, “whatever else RCM may have done, its communications to customers plainly set forth the terms of the margin loans, including RCM’s right to use all of the securities [belonging to] its margin customers pending settlement of the margin loans.” Id. at 195. In the more recent dismissal of the original complaint in this case, Judge Lynch had further occasion to review and interpret the Margin Annex. He reasoned that the “use or dispose” language in the Margin Annex allowed use for the benefit of RCM and not necessarily the customer, and therefore any such use — including up-streaming the assets for use by Refco affiliates — would not constitute a breach of fiduciary duty. Op. at 536. Judge Lynch also found that the “until settlement in full” language does not, as the Trustee argued under the original complaint, modify or limit the language allowing use free from “any claim of right” and therefore did not convey a false impression that the assets would be returned. Indeed, he found that the Margin Annex language “does not, in any way, restrict RCM’s use of the customers’ assets” because there is no specific prohibition to which RCM “claimed it would adhere” that would restrict their use. Op. at 538. Further, even if the phrase could be read to limit RCM’s use of a customer’s money, the Margin Annex explicitly allowed RCM to “loan, pledge, hypothecate or otherwise dispose of [customer] cash ... free from any claim or right” without limit. Id. at 538. Relying on RCM II, Judge Lynch further found that even “putting the case toward self-interested, uncollectible loans for the purpose of the Refco fraud” would not “necessarily be fraudulent” because RCM could still fulfill its obligation by purchasing “like amounts of similar cash [or] securities” from elsewhere and conveying those assets to the customers. Op. at 539 (citing RCM II at 185). Thus, whether the use of funds was authorized by the Margin Annex depends upon RCM’s “ultimate inability to return the customers’ assets on demand, or at the conclusion of any FX transaction” when, according to the Trustee’s allegations, the cash that would have otherwise been margin belongs entirely to the customer. Id. C. Dismissal Judge Lynch dismissed the Trustee’s claims for aiding and abetting fraud, breach of fiduciary duty, and conversion. In so dismissing, he first found that the Trustee had not adequately pled the underlying wrongs. Specifically: 1. Breach of fiduciary duty was not adequately pled because the FX Customer accounts were “non-discretionary”— RCM’s only duty was to execute foreign currency transactions upon receiving explicit customer instructions. And the Trustee did not allege that RCM breached any duty within the scope of that relation. (Op. at 535). 2. Fraud was not adequately pled because the upstreaming of the FX Customer Funds was permissible under the Margin Annex and therefore was not fraudulent. (Id. at 538). 3. Conversion was not adequately pled because, while the Trustee had raised a question of fact on whether the FX accounts were sufficiently identifiable to be the subject of conversion, he had not made sufficient factual allegations that RCM had exercised “an unauthorized dominion or control” over the accounts — again, because the Margin Annex permitted RCM to use those accounts. (Id. at 540-44). Judge Lynch noted that New York law provides recovery for wrongful detention as well as wrongful taking, but also noted that the Trustee made no allegations of wrongful detention. (Id. at 544, n. 24). Judge Lynch further held that, assuming an underlying wrong, the Trustee had failed to state a cause of action against the Professional Defendants for aiding and abetting. Specifically: 1. The Trustee had not sufficiently pled that the Professional Defendants “knowingly aided the insiders in converting the customers’ funds, using the customers’ funds in a way that breached the insiders’ duty of loyalty, or making affirmative misrepresentations that provided the customers with a false understanding of how RCM handled the assets in their accounts.” (Op. at 544). Judge Lynch noted that the bulk of the allegations as to the Professional Defendants’ knowledge of wrongdoing was related to the receivables scheme, rather than the customer scheme. He rejected the Trustee’s contention that both schemes were component parts of a single, cohesive plan on the part of the Insiders to cash out their interests in Refeo. He stated that any “common objective is insufficient to plead claims for aiding and abetting, ... because the Trustee must offer facts sufficient to demonstrate that the defendants had actual knowledge of wrongful conduct that harmed the FX customers — the alleged fraudulent siphoning of their funds — not actual knowledge of different wrongful conduct that might have harmed others, such as Refeo’s shareholders.” Id. at 545 (emphasis in original). 2. For similar reasons, Judge Lynch found that the Trustee had not adequately alleged that the Professional Defendants provided substantial assistance on the underlying wrongs. The allegations tied the defendants’ activity to the receivables scheme, but did not allege that the Professional Defendants had substantially assisted the siphoning of the FX accounts at RCM. Id. D. Repleading Judge Lynch granted the Trustee leave to amend, noting that it was “far from clear that repleading would be futile here.” Op. at 546. He concluded that the Trustee deserved “at least one opportunity” to re-plead with more specificity. Id. Many of the changes in the Amended Complaint are in the nature of style and reordering of paragraphs, and in deleting the assertions regarding Ernst & Young. Charitably construed, the material differences from the original complaint include the following: 1. The Amended Complaint sharpens, somewhat, the allegations that the FX customers were fraudulently induced to use RCM as a broker, because RCM held itself out as a viable, solvent broker when in fact it was not. See, e.g., Amended Complaint ¶¶ 14, 38. In the original complaint the First Claim for Relief against the Insiders was for fraud. That has been changed to a claim for fraudulent inducement. The claim for fraud has been moved to the Third Claim for Relief and asserts (beyond its duplication of the First Claim) that because of a special relationship, the Insiders had the fiduciary duty to inform the FX customers that RCM was insolvent. 2. The Amended Complaint sharpens, somewhat, the assertion that RCM up-streamed funds with the knowledge that they could not be repaid, i.e., with no intent to return them. See, e.g., Amended Complaint ¶ 14. 3. The Amended Complaint alleges that the Margin Annex, construed in light of RCM’s duty of good faith and fair dealing, “did not authorize RCM to upstream FX Margin (or other entrusted assets) to other Refco entities to fund the operational needs of Refco ... all the while knowing that RCM would be unable to return these funds to its FX Customers upon demand, or otherwise.” Thus, return of the FX Margin “was an express and/or implied condition of the FX Customers’ entrustment of their assets to RCM for the specific, limited, purpose of entering into FX trades at their direction.” Amended Complaint ¶ 53. Accordingly, the duty to return the funds was within the scope of the relationship and RCM breached its fiduciary duty by failing to return the funds on demand. Id. at ¶ 62. 4. The Amended Complaint adds allegations about Refco’s purchase of a subsidiary of Cargill that acted as a broker-dealer, “thereby transferring to RCM hundreds of millions of dollars in additional FX funds that were then available for the Refco Insiders’ fraudulent cashing-out scheme.” Id. at ¶ 55. The Trustee alleges that Mayer Brown facilitated the assignment of FX funds from Cargill to RCM. Id. at ¶¶ 56, 188-94. 5. The allegations against Mayer Brown are put in a mega-context — that Mayer Brown knew from an early point that the Insiders wanted to cash out, and that they needed customer funds to prop up the company until they could do so. See, e.g., Amended Complaint ¶ 137. 6. The Amended Complaint adds more specific allegations about Mayer Brown’s role in advising whether RCM could continue to remain unregulated after it was “repatriated” from Bermuda to the United States. Id. at ¶¶ 169-72. 7. The breach of fiduciary claim is amplified to cover a duty to ensure the return of assets that were upstreamed. Amended Complaint ¶ 299. 8. The conversion claim now focuses on wrongful detention as well as wrongful taking. Amended Complaint ¶¶317, 321. The question is whether any of these differences can get the Trustee out from under three critical determinations by Judge Lynch. Those three critical rulings are: 1. The terms of the Margin Annex allowed RCM to use the FX monies virtually without restriction, and without regard to the “depravity” of the use. (Op. at 539). 2. Because the FX accounts were non-discretionary, RCM’s only fiduciary duty was to effectuate trades as directed by the customers — a very limited duty, not alleged here to have been violated. (Op. at 535). 3. Allegations of knowledge about, and substantial assistance with, the “receivables scheme” are insufficient to withstand a motion to dismiss — the Trustee “must show that the defendants knowingly aided the insiders in converting the customers’ funds, using the customers’ funds in a way that breached the insiders’ duty of loyalty, or making affirmative misrepresentations that provided the customers with a false understanding of how RCM handled the assets in their accounts.” The fact that the receivables scheme and the customer scheme were part of a common objective to cash out “is insufficient to plead claims for aiding and abetting, however, because the Trustee must offer facts sufficient to demonstrate that the defendants had actual knowledge of wrongful conduct that harmed the FX customers — the alleged fraudulent siphoning of their funds — not actual knowledge of different wrongful conduct that might have harmed others, such as Refco’s shareholders.” (Op. at 545). II. Legal Standard on Motion to Dismiss The legal standard for evaluating a pleading on a motion to dismiss is as follows: 1. The Plaintiff need not establish that he will ultimately prevail. The question is whether the Plaintiff is entitled to obtain discovery and offer evidence to support his claim. Triestman v. Fed. Bureau of Prisons, 470 F.3d 471, 476 (2d Cir.2006) 2. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, ‘to state a claim for relief that is plausible on its face.’ ” Ashcroft v. Iqbal, — U.S. —, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009), quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). If the Plaintiff has not “nudged [his] claims across the line from conceivable to plausible, [his] complaint must be dismissed.” Twombly, 550 U.S. at 547, 127 S.Ct. 1955. 3. Claims of fraud must be “stated with particularity.” Fed.R.Civ.P. 9(b). “The purpose of Rule 9(b) is to protect the defending party’s reputation, discourage merit less accusations, and to provide detailed notice of fraud claims to defending parties.” Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir.1994). The Plaintiff must specifically describe the acts alleged to be fraudulent and provide some factual basis that creates a plausible inference of fraudulent intent. See generally Sharp Int’l Corp. v. State Street Bank and Trust Co. (In re Sharp Int’l Corp.), 403 F.3d 43, 56 (2d Cir.2005) (finding the details and purposes of an alleged fraudulent transfer to be inadequately pled). This heightened pleading standard requires a complaint to state “the who, what, when, where, and how” of the alleged fraud. In re Initial Pub. Offering Sec. Litig., 241 F.Supp.2d 281, 327 (S.D.N.Y.2003) (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.1990)). Particularity is necessary to provide the defendant “fair notice of the plaintiffs claim and the factual ground upon which it is based.” Novak v. Kasaks, 216 F.3d 300, 314 (2d Cir.2000) (quoting Ross v. Bolton, 904 F.2d 819, 823 (2d Cir.1990)). The Second Circuit has found that an inference of fraudulent intent “may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud,- or, (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.” Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir.1994). 4. Under Rule 9(b), “[m]alice, intent, knowledge, and other conditions of mind of a person may be averred generally.” But while the rule allows general averments of intent, knowledge, and other mental conditions, “it nevertheless requires a plaintiff to allege facts that give rise to a ‘strong inference’ of the defendant’s culpable state of mind. This may be done by alleging facts that the defendant had both motive and opportunity to commit or assist fraud, or facts that constitute strong circumstantial evidence of the defendant’s conscious misbehavior or recklessness.” In re Parmalat Securities Litigation, 501 F.Supp.2d 560, 573 (S.D.N.Y.2007) (quoting Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC, 479 F.Supp.2d 349, 359-60 (S.D.N.Y.2007)). 5. Claims sounding in conversion — including aiding and abetting — are evaluated under Rule 8, not Rule 9. (Op. at 524, n. 23) III. Allegations Concerning Primary Wrongs The Trustee alleges that the Professional Defendants aided and abetted the Refco insiders in committing three primary wrongs: fraud (including fraudulent inducement), breach of fiduciary duty and conversion. This part of the Report assesses whether the Trustee has adequately pled these primary wrongs. Of course if the Trustee has failed to plead sufficiently the underlying torts, there can be no aiding and abetting claim against the Professional Defendants. A. Fraudulent Inducement (First Claim for Relief), and Fraud (Third Claim for Relief). Judge Lynch dismissed the fraud claim in the original complaint because the Trustee’s allegations did not “suffice to establish any affirmative representation or act that gave plaintiffs a false understanding concerning ROM’s use of their assets.” Op. at 540. In response, the Trustee now alleges that RCM fraudulently induced the FX Customers (including the Cargill FX Customers) “to entrust and maintain their assets at RCM based on the false express and/or implied representations that RCM was a viable, solvent broker dealer with which customers could safely execute FX trades and which could return their FX Margin and other assets ... upon demand or otherwise.” Amended Complaint ¶ 292. According to this argument, ROM’s alleged fraud occurred after the point that RCM became insolvent, not before. Absent this fraudulent inducement, the Trustee argues, the FX Customers would not have entrusted and/or maintained their assets with RCM. As part of his fraudulent inducement claim, the Trustee alleges that RCM both affirmatively misrepresented and omitted material fact. New York law establishes the following elements for a fraudulent inducement claim: “ ‘(1) that the defendant made a representation, (2) as to a material fact, (3) which was false, (4) and known to be false by the defendant, (5) that the representation was made for the purpose of inducing the other party to rely upon it, (6) that the other party rightfully did so rely, (7) in ignorance of its falsity (8) to his injury.’ ” Computerized Radiological Servs. v. Syntex Corp., 786 F.2d 72, 76 (2d Cir.1986) (quoting Brown v. Lockwood, 76 A.D.2d 721, 730, 432 N.Y.S.2d 186 (2d Dept.1980)). Where the fraud is based on alleged misrepresentations, the complaint must “specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements.” Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 95 (2d Cir.2001) (quoting Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989)). Where the fraud is based on alleged omission of material fact — as is the case here — the plaintiff must show that the defendant had a duty to disclose. See United States v. Szur, 289 F.3d 200, 211 (2d Cir.2002) (“[Wjhen dealing with a claim of fraud based on material omissions, it is well settled that a duty to disclose ‘arises [only] when one party has information that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them.’ ”) (alteration in original) (quoting Chiarella v. United States, 445 U.S. 222, 228, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980)); Barron Partners, LP v. Lab123, Inc., 593 F.Supp.2d 667, 671 (S.D.N.Y.2009) (“Nondisclosure only becomes actionable ... where a defendant has a duty to disclose, which can arise where there is a confidential or fiduciary relationship between the parties.”) (internal citations omitted); Op., at 19 (citing Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela, 991 F.2d 42, 47 (2d Cir.1993)). 1. Fraudulent Inducement — Omission of Material Fact of Insolvency The Trustee argues that RCM fraudulently omitted to disclose to the FX Customers that the LBO rendered it hopelessly insolvent and so unable to repay customers who demanded the return of their assets. Concealing this information, the Trustee asserts, induced the FX Customers to entrust to and maintain their assets with RCM, despite the broker’s insolvency. RCM’s concealment of its insolvency and inability return assets would be fraudulent only if it had a duty to disclose this type of information to the FX Customers. The Professional Defendants argue that, because RCM did not owe the FX Customers a general fiduciary duty, they similarly did not, as a matter of law, owe the FX Customers a duty to disclose insolvency. See Reply Memorandum of Law in Support of Motion to Dismiss, at 8. This argument is overbroad. An absence of a general fiduciary duty does not eliminate the possibility of a duty to disclose a fact that is significant to the broker-customer relationship. The Second Circuit’s decision in United States v. Szur, 289 F.3d 200 (2d Cir.2002) is particularly instructive. In Szur, securities brokers challenged them conviction for wire fraud for an omission of material fact — they did not tell their customers about a 45% or 50% commission on the customers’ sale of stocks. The court noted that even where a general fiduciary duty is lacking, “a relationship of trust and confidence does exist between a broker and a customer with respect to those matters that have been entrusted to the broker.” Szur, 289 F.3d at 211. This relationship obligates brokers “‘to use reasonable efforts to give [the customer] information relevant to the affairs that [have] been entrusted to them.’ ” Id. (alterations in original) (quoting Press v. Chem. Inv. Servs. Corp., 166 F.3d 529, 536 (2d Cir.1999)). The Second Circuit then identified “three basic types of information available to a broker,” some of which is relevant to the affairs entrusted to the broker and must be disclosed: “ ‘information bor- dering] on insignificant minutia, the omission of which could never be actionable for fraud ... information [that] is clearly significant and must be disclosed accurately ... [and] information ... falling] into a grey area of possible insignificance and possible significance.’ ” Id. at 211-12 (quoting Press, 166 F.3d at 536). Using this rubric, the court “easily” concluded that the brokers were under a duty to disclose the steep commissions despite the “absence of any general fiduciary duty resulting from discretionary authority.” Id. at 212. It should be noted that the Trustee relied on Szur in its argument before Judge Lynch, and Judge Lynch held that Szur is unavailing here because the Trustee’s argument is deliberately indifferent as to whether a particular “use” is within the scope of a special relation. Instead, the Trustee contends that any use of customer assets by the broker “must be consistent with a fiduciary duty to avoid waste and theft.” (PL Opp. at 20.) As to this proposition, however, the Trustee cites no relevant precedent, perhaps because, as cases like Szur demonstrate, the fiduciary duty is limited by the broker’s exercise of discretion on behalf of the customer, not by whether there is a colorable argument that the broker is a crook. The Trustee’s focus on “waste” is therefore unpersuasive for the simple reason that a duty must be owed before that duty can be breached. (Op. at 536-37). Judge Lynch’s discussion of Szur is not determinative of the fraudulent inducement claim, however. As the Trustee notes, that claim is not dependent on “waste” or a breach of fiduciary duty. The Trustee is claiming that even if ROM had no general fiduciary duty, and even if it could use the FX funds however it wanted, it had the duty to notify customers that it was hopelessly insolvent. The question then is whether ROM’s hopeless financial condition — specifically, its alleged insolvency stemming from the LB O' — -was the type of information relevant to the affairs entrusted to ROM even in the absence of a fiduciary duty, thereby requiring disclosure. The Trustee answers this question affirmatively, arguing that a broker’s insolvency is “highly material to the broker-customer relationship” and should always be disclosed. Memorandum in Opposition to Motion to Dismiss at 20. The Trustee claims to find support for this position in some ancient cases — St. Louis & S.F. Ry. Co. v. Johnston, 133 U.S. 566, 10 S.Ct. 390, 33 L.Ed. 683 (1890), and Cragie v. Hadley, 54 Sickels 131, 99 N.Y. 131, 1 N.E. 537 (1885) — which hold that it is fraudulent for a bank to silently accept a customer’s deposit when it is hopelessly insolvent. Although the focus of the above-cited cases is banks, not brokers, the Trustee’s argument becomes more persuasive when one considers Section 339-d of New York’s General Business Law, which provides that a broker is guilty of a misdemeanor if the broker, with knowledge that he is insolvent, accepts or receives assets of a customer who remains ignorant of the broker’s insolvency. See N.Y. Gen. Bus. Law § 339-d (McKinney 2009). The federal securities laws, though not at issue in this case, lend further credibility to the argument. Pursuant to the antifraud provisions of the Securities Exchange Act, see 15 U.S.C. § 78j(b) (2000), a broker violates federal securities laws by accepting deposits from customers without disclosing the broker’s insolvency. See N.Y. Jur. 2d Brokers § 98 (2010). When coupled with the cases that the Trustee cites, these statutes lend at least some support to the notion that insolvency is the type of information relevant to the affairs entrusted to RCM that is sufficiently significant to require disclosure. The Professional Defendants argue that simple insolvency alone is not enough to trigger a duty to disclose. The Professional Defendants argue that the late nineteenth century cases that the Trustee cites “refer only to a duty to disclose ‘irretrievabl[e]’ and ‘hopeless[]’ insolvency — situations in which the individuals or entities entering into the contract never intended to make good on their contractual obligations.” Reply Memorandum at 8. The Professional Defendants’ point is well taken — the law cannot be that at the very point of insolvency, a broker exposes itself to a lawsuit from all its customers. A business operating at the margin might be insolvent on Tuesday, solvent on Wednesday, and insolvent on Thursday. Yet, the Trustee is not alleging insolvency that is doubtful or at the margin. It is this very type of hopeless insolvency that the Trustee alleges RCM fell into by way of the Refco LBO — and the Trustee sufficiently alleges that Refco was aware of, and indeed engineered, this hopeless insolvency. Up to this point, the Second Circuit has not articulated whether hopeless insolvency is the type of “information [that] is clearly significant and must be disclosed accurately.” Szur, 289 F.3d at 211-12 (quoting Press, 166 F.3d at 536). But at the very least, it appears to be the type of information “falling] into a grey area of possible insignificance and possible significance.” Id. Given that ambiguity, it cannot be said as a matter of law that RCM did not have a duty to disclose its financial condition as of the date of the LBO. It is certainly the kind of information on which a reasonable person would rely in deciding whether to place funds with a broker. Therefore, as to FX funds deposited after the date of the LBO, there remains a factual question as to fraudulent inducement that is not appropriately decided in a motion to dismiss. The analysis is different with respect to FX deposits placed before the date of the LBO. The Trustee admits that “before the insolvency there isn’t a fraud, after the insolvency there is.” The Trustee further admits that the point at which insolvency became clear is at the time of the LBO. Before that, RCM may have been insolvent, but not so clearly so — and so knowledgeably so — that it would rise to a duty to disclose under Szur. The Trustee notes that the Insiders fraudulently induced the customers to “entrust and maintain their assets at RCM” based on a false picture of solvency. Memorandum in Opposition to Motion to Dismiss at 2 (emphasis added). Certainly solvency of the broker is as important to customers maintaining their funds with the broker as it is to those deciding to place funds with that broker. But, as will be seen below, questions of causation require a different result for deposits made before and after the date of clear insolvency. 2. Fraudulent Inducement — Affirmative Misrepresentation The Trustee also alleges that RCM made affirmative fraudulent misrepresentations that induced FX customers to do business with RCM. Rather than pointing to any explicit misrepresentations, however, the Trustee relies on the “shingle theory” to posit that RCM impliedly — and falsely — represented to potential customers that it was a solvent broker with the ability to return customer assets upon demand. See Memorandum in Opposition to Motion to Dismiss at 21. It was ROM’s implied representation of “solvency, viability, and ability to return assets upon demand,” the Trustee argues, that induced FX Customers to “entrust [ ] and maintain [ ] an increasing amount of assets to RCM to engage in FX trading.” Id. Although the Trustee points to no authorities stating expressly stating so, the Trustee argues that the so-called “shingle theory” is a sufficient basis for common law fraud liability under New York law. The Trustee’s assertion is without merit. While it is true that courts have adopted the shingle theory to protect the public from brokers’ unfair dealings, this extension of the common law doctrine of “holding out” has no application in the instant case. Courts in the Southern District of New York have discussed whether the shingle theory — a doctrine developed by the SEC to enforce the federal securities laws — has been adopted as part of New York’s common law of fraud. In Granite Partners L.P. v. Bear, Stearns & Co. Inc., 58 F.Supp.2d 228 (S.D.N.Y.1999), Judge Sweet decidedly answered in the negative, stating that “the shingle theory has not developed as a generic theory of fraud liability ... but rather a specific theory of recovery under the federal securities laws.” Id. at 264. Finding no indication that “New York courts have ever embraced the shingle theory as part of New York’s common law of fraud,” Judge Sweet was loathe to adopt what can be viewed as a more permissive form of fraud liability. Id. at 266; see also Lehman Bros. Commercial Corp. v. Minmetals Int’l Non-Ferrous Metals Trading Co., 179 F.Supp.2d 159, 167 (S.D.N.Y.2001) (following Granite Partners and refusing to adopt the shingle theory in an action for fraud under New York law). Given the New York state courts’ lack of an express statement adopting the shingle theory as part of its common law of fraud — and the reluctance of courts in this District to so construe New York law — the Trustee’s fraud claim based on an affirmative misrepresentation must fail. Despite this obstacle the Trustee finds no reason to believe that “New York courts would tolerate a party presenting itself as a viable and solvent entity in order to induce customers to entrust and to maintain assets with it, knowing that it was in fact insolvent and could not repay those funds.” Memorandum in Opposition of Motion to Dismiss at 22 n. 7. However, the cases the Trustee cites for this position hardly provide a clear statement indicating that New York courts are prepared to incorporate the shingle theory into the State’s common law of fraud. The Trustee claims to find support in Manela v. Garantia Banking Ltd., 5 F.Supp.2d 165 (S.D.N.Y.1998), yet Judge Sweet considered this very case and determined that “it can hardly be taken as an indication that the shingle theory has become part of the fabric of New York’s common law.” Granite Partners, 58 F.Supp.2d at 265. Additionally, the Trustee cites People v. D.H. Blair & Co., 2002 WL 766119 (N.Y.Sup. 2002). Although Judge Sweet did not consider this case in Granite Partners, it too fails to adopt explicitly the shingle theory, merely saying that the defendants’ misrepresentations were “only part of the evidence” that supported their fraudulent scheme. Id. at *18. While the defendants’ misrepresentations were “relevant to the charges in th[e] indictment,” they were not its sole basis. Id. In contrast, the Trustee’s lengthy complaint fails to set forth any affirmative misrepresentation made by Refco or RCM to the FX customers that would supplement its shingle theory. 3. Fraudulent Inducement — Causation The Professional Defendants argue that, alleged misrepresentations and fraudulent omissions aside, the Trustee’s fraudulent inducement claim must fail for lack of causation. The Professional Defendants are correct that the Trustee’s fraudulent inducement claims fails for lack of causation as to funds deposited with RCM prior to the LBO that allegedly rendered the company hopelessly insolvent. It is incorrect as to funds deposited with RCM subsequent to the LBO. ROM’s failure to disclose its hopeless insolvency was not the cause of harm to those customers who merely maintained their funds with RCM after the company became hopelessly insolvent by way of the LBO. Assuming that, at the time of the LBO, RCM did disclose to its then-customers that it was hopelessly insolvent, there is nothing that those customers could have done at that point to get their money back. The announcement of hopeless insolvency would have triggered a run on RCM, in which all the company’s customers would have sought to recover their funds prior to the inevitable bankruptcy filing. Because RCM, by the terms of the Trustee’s complaint, had no ability to pay back the money that was up-streamed at the time of the LBO, the FX customers would have been unable to recover their funds. And those who were paid by RCM, if any, would have seen those funds recovered by the bankruptcy Trustee as a voidable preference for the benefit of the estate. Consequently, FX customers who were fraudulently induced only to maintain their funds with RCM after the company became hopefully insolvent were not harmed by RCM’s failure to disclose its pernicious financial position. Put another way, they were harmed by RCM’s insolvency, but not by RCM’s cover-up of its insolvency. The court, then, should dismiss for lack of causation the claims of those customers who allege that RCM’s failure to disclose its hopeless insolvency induced them to maintain their funds with the company after the date of the LBO. In contrast, FX Customers who claim that RCM’s lack of disclosure fraudulently induced them to deposit funds with the company after the LBO should not see those claims dismissed for lack of causation. It is more than plausible to believe that a customer would not deposit money with a hopelessly insolvent broker. Had RCM notified these FX Customers of the company’s true financial nature, the customers surely would have refused to deposit their funds with RCM and would have looked for a broker in the position to ensure credibly the return of their investment. The Trustee sufficiently pleads that RCM’s lack of disclosure caused these customers financial detriment that they otherwise would have avoided. See, e.g., Amended Complaint ¶ 38. Consequently, the Ti'ustee, in his First Claim for Relief for fraudulent inducement, has adequately pled a primary wrong with respect to all deposits made by FX Customers after the date of the LBO. Its claim of a primary wrong as to deposits made by FX Customers before the date of the LBO is, however, insufficient and therefore its claims against the Professional Defendants for aiding and abetting a fraudulent inducement, with respect to deposits made before the LBO, should be dismissed. That dismissal should be with prejudice because causation cannot be found under the Ti'ustee’s own theory. 4. Fraud The Trustee’s Third Claim for Relief alleges fraud on the part of the Insiders. The allegations are similar to the fraudulent inducement claim for relief, though with at least one exception — -the Trustee alleges that the Insiders had a duty to be forthcoming about RCM’s insolvency because they owed a fiduciary duty to the FX customers. It follows that, to the extent the Third Claim for Relief tracks the First Claim for relief, it adds nothing to the claim against the Professional Defendants for aiding and abetting. To the extent the Third Claim for Relief is dependent on a fiduciary duty, its viability is determined by the allegations in the Second Claim for Relief, concerning breach of fiduciary duty. This Report and Recommendation will return to the fraud claim after evaluating the claim for breach of fiduciary duty. B. Breach of Fiduciary Duty — Second Claim for Relief The Trustee alleges that, in effectuating the cashing-out scheme, RCM and its directors breached a fiduciary duty to the FX Customers. See Amended Complaint ¶¶ 295-303. The threshold question therefore is whether RCM and its directors were fiduciaries to the FX Customers. As discussed in a previous Report and Recommendation, the New York law on breach of fiduciary duty is broad, vague, and not very helpful in determining whether any particular relationship rises to the level of “fiduciary.” It is often stated that a fiduciary relationship “may exist where one party reposes confidence in another and reasonably relies on the other’s superior expertise or knowledge, but an arms-length business relationship does not give rise to a fiduciary obligation.” WIT Holding Corp. v. Klein, 282 A.D.2d 527, 724 N.Y.S.2d 66, 68 (2d Dept 2001). “Broadly stated, a fiduciary relationship is one founded upon trust or confidence reposed by one person in the integrity and fidelity of another. It is said that the relationship exists in all cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed. The rule embraces both technical fiduciary relations and those informal relations which exist whenever one man trusts in, and relies upon, another.” Penato v. George, 52 A.D.2d 939, 383 N.Y.S.2d 900, 904-5 (2d Dept 1976). New York courts have developed case law specific to the broker-customer relationship that helps to clarify the scope and nature of fiduciary duties in this context. In the broker-customer relationship, the broker’s “fiduciary obligation ... is limited to affairs entrusted to the broker.” Bissell v. Merrill Lynch & Co., 937 F.Supp. 237, 246 (S.D.N.Y.1996). As Judge Lynch noted, a broker may owe a fiduciary duty where he has discretionary trading authority over a customer’s account. Op. at 534. But where a broker does not have discretionary trading authority over an account, the broker’s only duty is the proper execution of transactions upon explicit customer instructions. Op. at 535. See Jordan v. UBS AG, 11 A.D.3d 283, 285, 782 N.Y.S.2d 722 (1st Dep’t 2004) (no duty of disclosure where customer had the sole authority to make trades: “Absent agreement to the contrary, not present here, a broker does not owe fiduciary duties to a purchaser of securities (see Perl v. Smith Barney, 230 A.D.2d 664, 666, 646 N.Y.S.2d 678 [1996], lv. denied 89 N.Y.2d 803, 653 N.Y.S.2d 281, 675 N.E.2d 1234 [1996]), excepting executing trades in accordance with the customer’s instructions.”). Thus, for non-discretionary accounts, the broker’s fiduciary duty is “limited to the narrow task of consummating the transaction requested.” 11 N.Y. Jur. 2d Brokers § 81 (2010) (citing de Kwiatkowski v. Bear, Stearns & Co., Inc., 306 F.3d 1293 (2d Cir.2002) (applying New York law)). While the broker in charge of a nondiscretionary account may provide advice and recommendations with respect to a specific transaction, the giving of that advice does not initiate an ongoing duty to do so, nor does it give a “legal claim on the broker’s ongoing attention.” de Kwiatkowski, 306 F.3d at 1302. In dismissing the Trustee’s original complaint, Judge Lynch determined that the Trustee alleged that the FX Customers entrusted to RCM only “the execution of foreign currency transactions upon receiving explicit customer instructions,” and found that limited entrustment to be the “hallmark [] of a non-discretionary account.” Op. at 535. Judge Lynch also found that RCM’s ability to use or dispose of the FX Customer’s funds, as contemplated by the Margin Annex, did nothing to make the customers’ accounts discretionary. Id. To the contrary, RCM’s wide latitude to use FX Customers’ funds suggested that “any action RCM took pursuant to assets treated as margin under the agreement was in RCM’s own interest, [was] not undertaken for the benefit of the customer” and did not give rise to a fiduciary duty because RCM’s use was “not a situation in which the broker ‘act[s] for or ... give[s] advice for the benefit of another within the scope of the relation.’ ” Id. (quoting Levitin v. PaineWebber, Inc., 159 F.3d 698, 700 (2d Cir.1998)). Moreover, Judge Lynch found the Trustee’s assertion that RCM had a fiduciary obligation to avoid using the FX customers’ funds in a manner that would lead to waste or theft “unpersuasive” and “overbroad.” Id. at 536. The Trustee predicated his theory of waste on the idea that RCM’s use of the FX customers’ funds was contrary to what the customers’ expected, but, according to Judge Lynch, the Trustee’s original complaint failed to identify whether the source of the FX Customers’ expectation was within the scope of its relation with RCM. In response, the Trustee asserts that he has amended his complaint to allege that RCM’s use of the FX Customers’ funds did fall within the scope of the affairs entrusted to RCM. Acknowledging that RCM lacked discretionary trading authority over the FX Customers’ accounts, see Amended Complaint ¶ 62, the Trustee nonetheless argues that the execution of ordered currency transactions is not the only matter that FX Customers entrusted to RCM. See Memorandum of Law in Opposition to the Motion to Dismiss at 15. According to the Trustee, the FX Customers also entrusted to RCM the obligation to return their funds on demand, and entrusted RCM to make reasonable provision for their return. See Amended Complaint ¶ 297 (stating that the return of FX Customers’ FX Margin and other assets entrusted to RCM “was an express and/or implied condition of the FX Customers’ entrustment of their assets to RCM for the specific, limited purpose of entering into FX trades at their direction”). The Trustee maintains that by virtue of this entrustment and RCM’s position as the FX Customers’ broker, RCM had a fiduciary duty not to waste the FX Customers’ assets and “to take reasonable steps to ensure the return of the FX Customer’s FX Margin and other assets upon demand.” Amended Complaint ¶ 299. The Trustee’s reformulated fiduciary duty argument rests on the premise that, regardless of whether he is in charge of a discretionary or nondiscretionary account, a broker has a fiduciary duty not to waste a customer’s assets and to return a customer’s funds upon demand. See Amended Complaint ¶ 62 (stating that even though “RCM was not a fiduciary with respect to customers’ trading decisions, it assumed a fiduciary role with respect to its use of customer funds and ... was obligated to ensure that its use of those funds ... was carried out in ways that would ensure that the funds would be available for return to the customers on demand or otherwise”); Memorandum in Opposition to the Motion to Dismiss at 17 (“Where ... a customer’s ... funds are unavailable because the broker has wasted them, New York law permits the customer to assert a claim for breach of fiduciary duty despite the fact that the broker had no obligation to provide any advice with respect to those same funds.”). The Trustee asserts that by upstreaming the FX Customers’ funds to other Refco controlled entities with no intent to repay, RCM breached this duty. This argument proves too much as it essentially imposes a fiduciary duty on a broker for all non-discretionary accounts that the broker fails to make good on. The Trustee is unable to cite any case law stating expressly that such a broad fiduciary obligation exists for a non-discretionary account. The cases cited are: 1. In re Nappy, 269 B.R. 277, 297-98 (Bankr.E.D.N.Y.1999). But this case does not help the Trustee, because it involves a broker that failed to implement trades properly, and the case stands for the same proposition relied upon by Judge Lynch in dismissing the original claim for breach of fiduciary duty: Where the broker does not have discretionary trading authority, the relationship between a broker and the customer, however, is still one of principal and agent. The relationship arises when an order to buy or sell is placed, and terminated when the transaction is completed. The broker’s duty is “to ‘use reasonable efforts’ to give the principal information relevant to the affairs entrusted to it. The affair entrusted to a broker who is to buy or sell through an exchange is to execute the order .... ” 269 B.R. at 297 (quoting Limbaugh v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 732 F.2d 859, 862 (11th Cir.1984)). 2. Gilman v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 93 Misc.2d 941, 944, 404 N.Y.S.2d 258 (Sup.Ct.1978). But again, this case involves the broker’s duty to effectuate trades properly as directed by the customer. The Trustee does not allege any violation of this duty by RCM. 3. de Kwiatkowski v. Bear, Stearns & Co., 306 F.3d 1293, 1305 (2d Cir.2002). But this case states that there is “no authority for the view that,” absent special circumstances, “a broker may be held to an open-ended duty of reasonable care [ ] to a nondiscretionary client.” Id. at 1306. Notably, Judge Lynch, specifically considering the applicability of de Kwiatkowski, found that the Trustee had not alleged any of the special circumstances listed in that case as possibly creating a fiduciary duty over the management of a non-discretionary account. Nor does the Trustee try, in the Amended Complaint, to plead any of those special circumstances. The Trustee argues that he has adequately responded to Judge Lynch’s dismissal because he has now pleaded that the FX Customers had “a clear expectation — well within the scope of their customer relationship with RCM — that any margin being used in connection with a potential trade, ... would not be wasted and would be available to be returned to them on demand.” Plaintiffs Memorandum of Law at 15-16. But pleading an expectation does not make it so given Judge Lynch’s grounds for dismissing the original complaint. Judge Lynch’s point was not that the Trustee simply had to amend the complaint to allege a “no-waste” fiduciary duty, but rather that the Trustee would have to show how the FX Customers could have reasonably expected that RCM would not waste the assets, given 1) that the account was non-discretionary and 2) that the terms of the Margin Annex — as he interpreted them — allowed RCM to dispose of the FX Customer funds in any way it saw fit. The case on fiduciary duty is ultimately closed by the Margin Annex as construed by Judge Lynch. Any finding of a fiduciary duty regarding the misuse and non-return of funds must fall short if the Margin Annex says that RCM could use the funds for any purpose. The Trustee, in a number of places in his Amended Complaint, essentially seeks to reinterpret the Margin Annex. For example, in Paragraph 1, the Trustee states: “Properly understood, this Margin Annex permitted RCM to use funds designated as FX Margin for the limited period in which trades were open, and it did not authorize waste of the funds, i.e., a use that RCM knew was likely or inevitably to be a losing transaction.” (citation omitted). That may well be a reasonable reading of the Margin Annex; it may be a ground for appeal. But it was not the reading given to it by Judge Lynch. Therefore, the Trustee’s attempt to get out from under the Margin Annex and plead a breach of fiduciary duty must fail. Accordingly, the Trustee has failed to plead the primary wrong of breach of fiduciary duty and any claim against the Professional Defendants for aiding and abetting a breach of fiduciary duty should be dismissed. This dismissal should be with prejudice because the Trustee has already been given an opportunity to plead around Judge Lynch’s interpretation of the Margin Annex and has failed to do so. C. Fraud (Redux) — Third Claim for Relief The Amended Complaint separates out a claim for fraudulent inducement (Claim One) and a claim for fraud (Claim Three). As discussed above, much of Claim Three tracks Claim One — specifically the claim that RCM projected itself out as a viable broker-dealer, and if it had disclosed its true financial condition the FX Customers would never have placed their funds with RCM. Amended Complaint ¶¶ 307-308. One difference in the Third Claim for Relief is the assertion that the Insiders had a duty to disclose RCM’s insolvency because they had “a special relationship of trust and confidence with the FX customers and owed them a duty of candor that their cashing-out scheme either had, or would, render RCM a non-viable, insolvent broker-dealer.” Amended Complaint ¶ 310. This allegation is a reference to a fiduciary duty that would require disclosure — but the viability of this allegation is controlled by the previous section, finding that the Trustee has not stated a breach of fiduciary duty. Ultimately it is not necessary to parse out Claim Three, because the Professional Defendants are not named under that Claim and so there is no motion to dismiss it before the court. It is enough to say that Claim Three adds nothing to the viability of the allegations of primary wrongs. As stated above, the Trustee has adequately pled fraudulent inducement with respect to FX funds placed with RCM after the date of the LBO. But he has not adequately pled any kind of fraud with respect to FX funds placed with RCM before that date. D. Conversion — Fourth Claim for Relief Judge Rakoff has set forth the requirements for a cause of action for conversion under New York law: “the legal interests that a party bringing a conversion claim must show a