Absolute Activist Value Master Fund Ltd. v. Ficeto
677 F.3d 60
| 2d Cir. | 2012Background
- Nine Cayman Islands hedge funds sued in federal court for fraud in U.S. Penny Stock transactions conducted through a U.S. broker-dealer.
- ACM acted as investment manager for the Funds; Homm, Ewing, Angersbach, and Heatheringtons held key roles in ACM and related entities.
- Funds allegedly suffered at least $195 million in losses from a pump-and-dump scheme involving PIPE financings and price inflation of U.S. penny stocks.
- Trading defendants allegedly caused Funds to purchase penny stocks directly from U.S. issuers and then inflated prices via trading activity, with profits to defendants.
- District court dismissed after Morrison, holding §10(b) applies only to domestic transactions; Court of Appeals reviews de novo; remand for amended complaint and further proceedings.
- Court notes pre-Morrison pleading standards and allows amendment to plead domestic transactions more plausibly.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Definition of a domestic transaction under Morrison | Funds contend transactions domestic if not on a domestic exchange but implicate U.S. liability | Defendants argue lack of domestic locus under Morrison's transactional test | Transactions domestic if irrevocable liability incurred or title transferred in U.S. |
| Whether complaint adequately alleges domestic transactions | Allegations show U.S. involvement through marketing, payments, and placements | Few concrete facts showing where contracts were formed or title passed | Complaint insufficient to plead domestic transactions; needs amendment with concrete facts |
| Leave to amend the complaint | Additional documents and records could reveal domestic transactions | Amendment may be futile if facts cannot show domestication | Affirmed right to amend; district court should permit amendment with proposed facts |
| Subject matter jurisdiction and Morrison's effect on pleadings | Remedies under §10(b) should be available given alleged in-U.S. activity | Morrison limits extraterritorial reach; merits require proving domestic transactions | Court retains jurisdiction; merits depend on domestic-transaction proof on remand |
Key Cases Cited
- Morrison v. Nat'l Australia Bank Ltd., 130 S. Ct. 2869 (2010) (transitional test for domestic transactions; extraterritorial reach limited to domestic transactions in other securities)
- Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876 (2d Cir. 1972) (irrevocable liability time of transaction for purchase/sale under Rule 10b-5)
- SEC v. Goldman Sachs & Co., 790 F. Supp. 2d 147 (S.D.N.Y. 2011) (district approach recognizing domestic transaction through irrevocable liability)
- Plumbers' Union Local No. 12 Pension Fund v. Swiss Reins. Co., 753 F. Supp. 2d 166 (S.D.N.Y. 2010) (recognition of domestic transaction where liability or title passes in the U.S.)
- Quail Cruises Ship Mgmt. Ltd. v. Agencia de Viagens CVC Tur Limitada, 645 F.3d 1307 (11th Cir. 2011) (title transfer within the United States as a domestic transaction)