On January 6, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a derivative action alleging that the Chief Executive Officer, Chairman of the Board of Directors, ten other Board members, and two former corporate officers and advisors of the nominal defendant financial institution ignored “glaring ‘red flags’ of suspicious and illicit misconduct associated with” Bernard Madoff’s Ponzi scheme and Madoff’s investment advisory unit’s account with the institution. Cent. Laborers’ Pension Fund v. Dimon, No. 14-4516, (2nd Cir. Jan. 6, 2015). In July 2014, “the District Court dismissed plaintiffs’ complaint on the ground that they ‘failed to allege with particularity facts sufficient to excuse [their] failure to make demand upon the Board prior to filing’ their action.” The District Court found that the plaintiffs had not alleged that the defendants (i) “‘utterly failed to implement any reporting or information system or controls’”; or (ii) “‘having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.’” (quoting Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006)). The District Court further found that because the plaintiffs only claimed that the financial institution’s controls were “inadequate,” as opposed to nonexistent, they were unable to maintain a Caremark action, i.e., an action for failure to monitor. See Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996). Plaintiffs challenged the District Court’s ruling on the grounds that “they should have been required to plead only defendants’ ‘utter failure to attempt to assure a reasonable information and reporting system existed,” as opposed to failing to implement any reporting or information system or controls. The Second Circuit upheld the District Court’s decision, however, maintaining that “the standard that the District Court applied was taken verbatim from Stone v. Ritter, a Delaware Supreme Court decision that the District Court was obligated to follow,” and although the language the plaintiffs contended should have been used was taken from Caremark, Caremark is not controlling because it was issued by a lower court than Stone before Stone was issued and Stone interpreted Caremark. The Second Circuit further opined that it was not clear that replacing the Stone standard with the language from Caremark would have made a “difference in the disposition of plaintiffs’ action” because of facts demonstrating an “attempt to assure a reasonable information and reporting system existed.”