In re Satyam Computer Services Ltd. Securities Litigation
915 F. Supp. 2d 450
S.D.N.Y.2013Background
- Massive Satyam fraud involved forged invoices, shell entities, dual books, and inflated assets by over $1 billion.
- Two related complaints: a consolidated securities class action and Aberdeen action on Exchange Act, Securities Act, and common law claims.
- Motions to dismiss filed by Director Defendants, SA Defendants, and Maytas Defendants; rulings grant dismissal of FACC and SAC claims against these groups.
- Lead Plaintiffs allege AC Defendants oversaw financial reporting, internal controls, and auditor management; PwC is central to alleged participation.
- Fraud details include fake invoices, ghost employees, off-balance-sheet related-party loans, and Maytas transactions to benefit the Raju family.
- Morrison v. National Australia Bank provides the controlling framework for extraterritorial reach, with additional Morrison-based rulings affecting standing and jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing for Exchange Act and Securities Act claims | Adams and MPERS lack standing to represent all plans/securities. | Standing limited to those who purchased or acquired securities at issue; one plan does not suit others. | Adams lacks standing for RSU plans; ASOP-B and ASOP-ADS survive for those who exercised those plans. |
| Application of Morrison transactional test | MPERS and sub-class claims involve domestic effects from US purchasers of foreign stock and ADSs. | Morrison requires domestic transactions; foreign purchases/exercises not within section 10(b) reach. | MPERS claims dismissed; sub-class ADS exercises dismissed for lack of domestic transaction; remaining NYSE ADS claims may proceed for some plaintiffs. |
| Securities fraud pleading and scienter (Rule 9(b)/PSLRA) | FACC pleads group allegations linking AC Defendants to misstatements; strong inference of scienter. | Group pleading insufficient for scienter; no specific facts showing reckless or conscious intent. | Fraud claims against AC Defendants dismissed for lack of strong inference of scienter. |
| Section 20(a) control person liability | AC Defendants controlled the primary violator and participated in fraud; Maytas as control persons too. | Insufficient showing of control over primary violator; culpable participation not shown. | Section 20(a) claims against AC Defendants dismissed; Maytas 20(a) claims dismissed for lack of jurisdiction and ties to U.S. transactions. |
| Personal jurisdiction over Maytas Defendants | Conspiracy theory supports jurisdiction over Maytas via effects in the United States. | Conspiracy theory insufficient; no minimum contacts linking Maytas to U.S. forum. | Personal jurisdiction over Maytas Defendants granted to be lacking; claims dismissed for lack of jurisdiction. |
Key Cases Cited
- Morrison v. National Australia Bank, Ltd., 130 S. Ct. 2869 (U.S. 2010) (extraterritorial reach; domestic transactions focus for §10(b))
- Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (U.S. 1975) (standing to sue for securities claims)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (strong inference standard for scienter under PSLRA)
- In re Livent, Inc. Sec. Litig., 78 F. Supp. 2d 194 (S.D.N.Y. 1999) (group pleading and required factual basis for scienter)
- First Jersey Sec. Litig., 101 F.3d 1450 (2d Cir. 1996) (control/culpable participation standards for §20(a))
- In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326 (S.D.N.Y. 2011) (standing and section 10(b) pleading considerations)
- In re WorldCom, Inc. Sec. Litig., 294 F. Supp. 2d 392 (S.D.N.Y. 2003) (magnitude of fraud not alone establishing scienter)