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NIKKO ASSET MANAGEMENT CO., LTD. v. UBS AG

February 11, 2004.

NIKKO ASSET MANAGEMENT CO., LTD., on behalf of itself, and as Trustee of NIKKO MONEY MANAGEMENT FUND ("MMF") and PF HMMF, NIKKO ASSET MANAGEMENT CO., LTD. MONEY MANAGEMENT FUND ("MMF"), and PF HMMF, Plaintiffs -against- UBS AG, UBS WARBURG (JAPAN), LTD., UBS WARBURG, UBS WARBURG LLC, UBS AG LONDON BRANCH, and UBS AG JERSEY BRANCH, Defendants


The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge

OPINION

Defendants UBS AG, UBS Warburg (Japan), Ltd. ("UBS Japan"), UBS Warburg, UBS Warburg LLC ("UBS Warburg"), UBS AG London Branch, and UBS AG Jersey Branch ("UBS AG") (collectively "UBS") have moved pursuant to Rule 9(b), 12(b)(1), and 12(b)6, Fed.R. Civ. P., and the doctrine of forum non conveniens to dismiss the corrected first amended complaint ("CFAC") of plaintiffs Nikko Asset Management Co., Ltd. ("Nikko"), Nikko Money Management Fund ("MMF"), and PF HMMF ("HMMF"), Nikko Asset Management Co., Ltd., Money Management Fund ("MMF") and PF HMMF (collectively "Nikko"). For the reasons set forth below, the motion is granted.

  In June and July 2001, defendant UBS Japan arranged for the sale of two series of credit-linked notes to Nikko in the total amount of JPY (Japanese Yen) 20,000,000,000, which is alleged to have bought these notes on behalf of two Japanese investment funds. The notes were issued by defendant UBS AG with its subsidiaries, and linked UBS's obligations to pay principal and interest to certain events occurring at Enron Corporation ("Enron"). Such notes were developed and are employed to transfer credit risk.

  Whether the purchase and sale of the credit-linked notes ("CLNs") is covered by the federal securities laws in light of the demise of Enron and the alleged knowledge of the defendants of the Page 2 probability of that demise is the central issue presented by this motion.

 The Parties

  Nikko is a corporation organized and existing under the laws of the country of Japan, and maintains its principal executive office at 1-1-3, Yurakucho, Chiyoda-ku, Tokyo, Japan. Nikko is an investment trust management company and provides investment management services, managing Japanese equity and fixed income assets for institutional clients and Japanese mutual funds for retail clients.

  MMF is a contractual investment trust existing under the investment trust law of Japan and trust clauses with beneficiaries. MMF was operated by Nikko in the custody and safe keeping of Mitsubishi Trust and Banking Corporation based on an agreement between Nikko and Mitsubishi Trust and Banking Corporation.

  HMMF is a contractual investment trust existing under the investment trust law of Japan and trust clauses with beneficiaries, operated by Nikko in the custody and safe keeping of Mitsubishi Trust and Banking Corporation based on an agreement between Nikko and Mitsubishi Trust and Banking Corporation. Page 3

  UBS AG is a corporation organized under the laws of Switzerland with its principal executive offices located at Bahnhofstrasse 45, CH-8098, Zurich, Switzerland. UBS AG is a global, integrated investment services firm involved in all major banking activities, including international investment banking and corporate finance, private banking, institutional asset management and, in Switzerland, retail and corporate banking.

  UBS Warburg (Japan) Ltd. ("UBS Warburg Japan") with its principal place of business at East Tower, Otemachi First Square 5-1, Otemachi 1-chome, Chiyoda-ku, Tokyo 100-0004, is a division of UBS Warburg and a wholly owned subsidiary of UBS AG.

  USB Warburg is the investment banking arm of UBS AG with its principal place of business at 1/2 Finsbury Avenue, London, EC2M 2PP, United Kingdom. UBS Warburg employs over 17,000 people worldwide and has substantial operations in the United States, Switzerland, Japan, Australia, Hong Kong and Singapore. UBS Warburg's operations include debt and equity finance, advisory services, research, risk management, and securities and foreign exchange. UBS Warburg also offers investors access to private equity and hedge funds. The company works with corporate, institutional, government, and private clients worldwide.

  UBS Warburg, LLC is a Delaware Limited Liability Company, authorized to do business in New York. UBS Warburg, LLC is a Page 4 division of UBS Warburg and a wholly owned subsidiary of UBS AG with its principal place of business at 299 Park Avenue, New York, New York 10171-0026.

  UBS AG London Branch ("UBS London") is a wholly owned subsidiary of UBS AG with its principal place of business at 1/2 Finsbury Avenue, London, EC2M 2PP, United Kingdom.

  UBS AG Jersey Branch ("UBS Jersey") is a wholly owned subsidiary of UBS AG and serves as UBS AG's branch in the Channel Islands (U.K.) with its offices located at 24, Union Street, St. Helier, JE 2 3RF. (The defendants referred to herein are collectively referred to as "UBS" or "Defendants").

 The Transaction

  On June 18, 2001, MMF purchased JPY 10,000,000,000 of UBS AG .89% Fixed Rate Notes, Series No. 696, Tranche 1, which had an issue date of June 21, 2001 and a maturity date of June 17, 2002 (the "June Notes") from UBS Warburg Japan constituting a purchase of 100% of the outstanding issue of the June Notes. (CFAC ¶ 11).

  On July 26, 2001, MMF purchased JPY 9,000,000,000 of UBS AGJ .89% Fixed Rate Notes, Series No. 726, Tranche 1, which had an issue date of August 7, 2001 and a maturity date of July 25, 2002 (the "July Notes") from UBS Warburg Japan. (CFAC ¶ 12). Page 5

  On July 26, 2001, HMMF purchased JPY 1,000,000,000 of UBS AG .89% Fixed Rate Notes, Series No. 726, Tranche 1, which had an issue date of August 7, 2001 and a maturity date of July 25, 2002 (the "July Notes") from UBS Warburg Japan. By this transaction and the purchase described in the preceding paragraph, Nikko MMF and HMMF purchased 100% of the July Notes issue. (CFAC ¶ 14). The June Notes and the July Notes are collectively referred to as "the Notes, "Credit Linked Notes" or the "CLNs".

  The CLNs listed Enron as the "Reference Entity" and provided that if Enron suffered a Credit Event, the Notes may diminish in value according to a formula in the Pricing Supplements that essentially tracked the value of certain specified Enron credit obligations. (CFAC Exs. 3, 5 (Pricing Supps.) at 1, 3, 10). The Pricing Supplements stated that the value of the Notes might "be zero" if a Credit Event occurred. (CFAC Exs. 3, 5 (Pricing Supps.) at 1). The Supplements further state that "the issuer makes no representations as to the future performance of the Notes either in absolute terms or relative to competing investments," and that "[t]here is no guarantee, protection or assurance for purchasers of the Notes in respect of the credit or performance of the Reference Entity or Reference Obligation." Id. at 13. The Notes were one of several types of notes issuable under a UBS Warburg programme, and Nikko bought all of the CLNs issued under the Pricing Supplements for these particular CLNs with Enron as the Reference Entity. (CFAC ¶¶ 11, 13, Ex. 1 (Info. Mem.) at 69-71). Page 6

  The solicitation of the purchases of, and the sales of, the June Notes and July Notes to MMF and HMMF were made pursuant to the (i) Information Memorandum; (ii) June Notes Term Sheet; (iii) June Notes Pricing Supplement; (iv) July Notes Term Sheet; (v) July Notes Pricing Supplement (Exhibits 1-5 to the CFAC). The Information Memorandum, June Notes Term Sheet, June Notes Pricing Supplement, July Notes Term Sheet, and July Notes Pricing Supplement are hereinafter sometimes collectively referred to as the "CLN Offering Memoranda." (CFAC ¶ 15).

  UBS Warburg Japan dealt directly with Nikko and MMF and HMMF, and sold them the UBS June and July Notes in Japan in June and July, 2001. (CFAC ¶ 18).

  According to the Information Memorandum and the purchase transaction confirmations, UBS Warburg acted as the seller of the June Notes and July Notes in connection with Nikko MMF's and HMMF's purchase of those notes. UBS AG, through UBS Warburg, acted as (1) arranger and dealer for the June Notes; (2) arranger and dealer for the July Notes; and (3) London listing ...


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