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SEDIGHIM v. DONALDSON

October 5, 2001

SIAMAC SEDIGHIM, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
V.
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.

      OPINION

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 are granted.

BACKGROUND

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 position.

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. at 4.

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 ...


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