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SEDIGHIM v. DONALDSON
October 5, 2001
SIAMAC SEDIGHIM, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
DONALDSON, LUFKIN & JENRETTE, INC., DONALDSON, LUFKIN & JENRETTE SECURITIES CORP., CREDIT SUISSE GROUP, DIAMOND ACQUISITION CORP., AXA S.A., AXA FINANCIAL, INC., THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, JOHN S. CHALSTY, JOE L. ROBY, STUART M. ROBBINS, DAVID F. DELUCA, HENRI DE CASTRIES, DENIS DUVERNE, JANE M. GOULD, LOUIS HARRIS, MICHAEL HEGARTY, HENRI G. HOTTINGUER, HAMILTON E. JAMES, W.E. JARMAIN, FRANCIS JUNGERS, W.J. SANDERS III, JOHN C. WEST, ANTHONY DADDINO, EDWARD D. MILLER AND STANLEY B. TULIN, DEFENDANTS.
The opinion of the court was delivered by: Cedarbaum, District Judge.
Although Siamac Sedighim is the plaintiff named in the caption
of this case, Vitali Lipanov and Mark Pasquale have been named
lead plaintiffs pursuant to the Private Securities Litigation
Reform Act of 1995, 15 U.S.C. § 78u-4 et seq. The lead
plaintiffs sue DLJ, Donaldson, Lufkin & Jenrette Security
Corp.,. DLJ's operating subsidiary, CSG, Diamond Acquisition
Corp. ("DAC"), a wholly owned Delaware subsidiary of CSG, AXA
S.A., AXA Financial, Inc., and The Equitable Life Assurance
Society of the United States, the three majority shareholders of
DLJ (collectively referred to as "AXA"), and several officers
and directors of DLJ, CSG and AXA, alleging violations of
federal and state law. Specifically, plaintiffs allege that
defendants violated (1) Sections 11 and 12 of the Securities Act
of 1933, 15 U.S.C. § 77a et seq., by making material
misrepresentations and omissions in connection with the initial
public offering of DLJdirect stock and (2) Section 14(e) of
the. Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.,
by making material misrepresentations and omissions in the
tender offer materials. Plaintiffs also assert claims for fraud
and breach of contract under Delaware law.
The AXA defendants and the CSG and DLJ defendants have made
separate motions to dismiss the complaint under Fed.R.Civ.P. 9,
12(b)(1) and 12(b)(2). For the following reasons, the motions
Prior to the consummation of the tender offer, DLJ was a
Delaware financial services holding company doing business
through its principal subsidiary, DLJ Securities Corp., and
DLJdirect, its online brokerage business. Approximately 30% of
the DLJ common stock was publicly held, and the remaining 70%
was owned by defendant AXA S.A., a French company, and its
affiliates AXA Financial and the Equitable Life Assurance
Society of the United States. CSG, a Swiss corporation, is the
parent of CSFB. DAC was a wholly owned Delaware subsidiary of
CSG and the entity through which the tender offer was carried
out. Following the completion of the tender offer, DLJ and DAC
merged, with DLJ as the surviving corporate entity. The
individual defendants are officers and directors of DLJ and AXA.
The DLJdirect Offering and Prospectus
In late May, 1999, DLJ issued 16 million shares of DLJdirect
stock for $20 per share in an initial public offering. It
retained 84.3 million DLJdirect shares. The DLJdirect stock
was intended to "track" the DLJdirect online brokerage
business. In other words, the value of DLJdirect shares would
vary with the performance of the online brokerage business. The
DLJdirect business was separated from the rest of DLJ's
business for accounting purposes. A wholly-owned subsidiary of
DLJ, DLJdirect Holdings ("Holdings"), held title to a majority
of DLJdirect assets, but DLJdirect, itself, was a division
of DLJ and not a separate corporate entity.
In connection with the IPO, DLJ filed a Registration Statement
and Prospectus (the "Prospectus") with the SEC. The Prospectus
stated the following:
Holders of DLJdirect common stock will not have any
claims on the assets of DLJdirect.
Even though from a financial reporting standpoint we
have allocated our consolidated assets, liabilities,
revenue, expenses and cash flow between DLJdirect
and DLJ, that allocation will not change the legal
title to any assets or responsibility for any
liabilities . . . Further, in any liquidation,
holders of DLJdirect common stock will receive a
share of the net assets of [DLJ] based on the
relative trading prices of DLJdirect common stock
and DLJ common stock rather than on any assessment of
the actual value of DLJdirect or DLJ.
DLJdirect Prospectus ("Prosp.") at 11. It also said that
holders of DLJdirect stock will have no voting rights, except
in limited circumstances where a separate class vote is required
by Delaware law. Prosp. at 6, 11, 75.
In the section on risk factors, the Prospectus stated that DLJ
could not guarantee that the price of the stock would track the
performance of the DLJdirect business as intended, and that
DLJdirect shareholders would be common shareholders of DLJ,
subject to all of the risks of investment in DLJ and all its
businesses. Prosp. at 11. It also said that material financial
events which occur at DLJ may affect DLJdirect's financial
Contrary to plaintiffs' allegations, the Prospectus did not
represent that DLJdirect shareholders would be entitled to all
the benefits of ownership of DLJ common stock. The Prospectus
said that DLJdirect shareholders would be "common shareholders
of Donaldson, Lufkin and Jenrette, Inc.," Prosp. at 11, but it
made clear that DLJdirect common stock was not the same as DLJ
common stock. For example, the Prospectus Summary stated that
"[w]e are offering you shares of DLJdirect common stock, but
we are not offering you any shares of DLJ common stock." Prosp.
The Prospectus further disclosed that there would be conflicts
of interest between DLJ shareholders and DLJdirect
shareholders, and that the DLJ board might make decisions
favoring DLJ shareholders. Prosp. at 11, 15-15, 50-51. As an
example of the type of decisions in which a conflict might
arise, the Prospectus mentioned "decisions on how to allocate
consideration received from a merger involving [DLJ] between
holders of DLJ common stock and DLJdirect common stock."
Prosp. at 11.
The Prospectus also stated that in the event of a sale of more
than 80% of the assets of DLJdirect, DLJdirect shareholders
would be entitled to one of the following: (1) a dividend in an
amount equal to the proportionate interest in the net proceeds
of the sale, (2) redemption of DLJdirect shares for an amount
equal to the proportionate interest in the net proceeds of the
sale, or (3) issuance of DLJ stock at a 10% premium over the
value of DLJdirect shares. Prosp. at 6, 71-72.
Finally, in a paragraph captioned "Relationship with DLJ," in
which the Prospectus discussed potential conflicts between
DLJdirect and DLJ with respect to cash management ...