2 F. Supp. 3d 550
S.D.N.Y.2014Background
- S-K Fund is a Kazakh sovereign wealth fund that controls BTA Bank and directed its affairs.
- In 2010, BTA Bank restructured debt issuing Notes and provided an Information Memorandum to creditors, including Atlántica and Baltica.
- Notes were largely located offshore, traded outside the U.S., but had U.S. involvement through Direct Participants and brokers; 25% of Notes were purchased by U.S. investors.
- Plaintiffs purchased Notes between 2010 and 2012; Atlántica and Baltica participated in the 2010 restructuring, others acquired Notes later on secondary markets.
- Plaintiffs allege false/misleading statements about BTA Bank’s finances and certain related transactions, followed by a 2012 restructuring and a Chapter 15 bankruptcy filing in 2012.
- S-K Fund moved to dismiss on FSIA jurisdiction, personal jurisdiction, Rule 12(b)(6) and 9(b)/PSLRA pleading standards, and control-person claims; motion granted in part and denied in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FSIA commercial-activity exception establishes jurisdiction | S-K Fund engaged in U.S.-oriented commercial activity with direct U.S. effects. | No applicable FSIA exception; lack of domestic nexus. | Commercial-activity exception applies; jurisdiction exists. |
| Whether Section 10(b) claims require domestic transactions | Domestic purchases/transactions plausibly alleged via irrevocable liability in the U.S. | Notes were not domestic securities; no domestic transaction pleaded. | Amended Complaint plausibly alleges domestic transactions for purposes of 10(b). |
| Whether reliance on Information Memorandum is adequately pleaded | Scattershot disclosures do not negate reasonable reliance; 2011 statements remain actionable for some plaintiffs. | Reliance was unreasonable due to disclosures and no-reliance clauses. | Reliance adequately pleaded for Atlántica and Blu; some Baltica/individual claims dismissed for 2011+. |
| Whether loss causation and scienter are adequately pled | Disclosure of false statements followed by price drop shows causation; motive and opportunity shown. | Insufficient facts to show scienter and causation tied to alleged fraud. | Loss causation and scienter adequately pled; claims survive accordingly. |
| Whether control-person liability is viable | S-K Fund liable as a control person for the asserted 10(b) claims. | Control-person liability remains derivative and unproven. | Control-person claims survive except as to Baltica and the individual plaintiffs for 2011+ claims. |
Key Cases Cited
- Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) (limits Section 10(b) to domestic transactions and domestic purchases)
- Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012) (defines domestic transaction for securities not listed domestically)
- Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384 (2d Cir. 2000) (clarifies 'based upon' and requirements for FSIA jurisdiction)
- Weltover, Inc. v. Republic of Argentina, 504 U.S. 607 (1992) (direct-effect concept under FSIA commercial-activity exception)
- Kensington Int’l Ltd. v. Itoua, 505 F.3d 147 (2d Cir. 2007) (significant-nexus and 'based upon' standards for FSIA exceptions)