Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk-Kazyna JSC
1:12-cv-08852
S.D.N.Y.Aug 29, 2017Background
- Investors (Plaintiffs) sued BTA Bank JSC and Sovereign Wealth Fund Samruk‑Kazyna in consolidated actions alleging securities fraud under Sections 10(b) and 20(a) of the Exchange Act related to subordinated debt issued in a 2010 restructuring and subsequent secondary‑market trades.
- Defendants moved to dismiss under Morrison and Rule 12(b)(6), arguing the transactions were extraterritorial and not domestic; the Court previously denied those motions, finding Plaintiffs had plausibly alleged they incurred irrevocable liability in the United States.
- Defendants renewed relief via Rule 12(c) and summary judgment (Rule 56), again asserting Morrison bars Plaintiffs’ claims because clearing/settlement occurred in Europe and the transactions were offshore.
- Discovery showed many Plaintiffs placed binding orders through UBS’s Miami office (including Electronic Instruction Forms and funded UBS Miami accounts), and UBS located counterparties via its New Jersey office—supporting that irrevocable liability was incurred in the U.S.
- Defendants also argued (1) the exchange in the restructuring was not a “purchase or sale” under §10(b), and (2) certain plaintiffs cannot show causation because the restructuring would have been approved without their votes.
- The Court denied defendants’ motions in full: it found Morrison inapplicable on the record (irrevocable liability in the U.S. suffices), treated the restructuring exchange as a purchase/sale, and rejected the causation/’fait accompli’ argument here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Domestic‑transaction under Morrison | Plaintiffs incurred irrevocable liability in U.S. (UBS Miami executed/binded orders) | Transactions are foreign because clearing/settlement (Euroclear) and Regulation S designation show offshore offers/sales | Held for Plaintiffs: irrevocable liability in U.S. establishes domestic transaction under Morrison/Absolute Activist; Regulation S and Euroclear settlement do not defeat that showing |
| Whether exchange in 2010 restructuring is a “purchase or sale” under §10(b) | The exchange of old securities for new debt during a major restructuring is a purchase/sale because it alters investment and risk | Exchange is not a purchase/sale (relied on cases about bankruptcy share conversions) | Held for Plaintiffs: exchange qualifies as a purchase/sale here; bankruptcy precedents are distinguishable because this restructuring was not a court‑administered bankruptcy |
| Causation for restructuring‑related losses | Plaintiffs’ votes and participation were material and caused their losses | Restructuring would have been approved without Plaintiffs’ votes (fait accompli), so Plaintiffs cannot show causation | Held for Plaintiffs: defendants lacked control making outcome a fait accompli; Virginia Bankshares line of cases inapplicable where defendants did not ensure approval absent Plaintiffs’ votes |
| Summary‑judgment posture and factual disputes (e.g., Vision transactions) | Discovery shows binding U.S. contacts (UBS Miami or Miami broker‑dealers); factual disputes remain for some transactions | Defendants assert discovery disproves domestic contacts for many transactions | Held: genuine factual disputes exist on some transactions but overall record supports Plaintiffs’ allegations; summary judgment denied |
Key Cases Cited
- Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010) (Supreme Court limiting extraterritorial application of Exchange Act; domestic‑transaction test governs)
- Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012) (disjunctive test: domestic transaction can be shown by U.S. locality of trading or by incurring irrevocable liability in U.S.)
- Gelles v. TDA Indus., Inc., 44 F.3d 102 (2d Cir. 1994) (exchange of securities can constitute a purchase or sale under the securities laws)
- Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991) (no causation where minority votes were not required for approval in freeze‑out merger)
- City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014) (consideration of Morrison in context of cross‑border securities transactions)
- Parkcentral Global Hub Ltd. v. Porsche Automobil Holding SE, 763 F.3d 198 (2d Cir. 2014) (application of Morrison/Absolute Activist to complex international securities deals)
- United States v. Wernes, 157 F.2d 797 (7th Cir. 1946) (recognizing an exchange of one security for another can be treated as a sale)