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Telenor East Invest AS v. Altimo Holdings & Investements Limited

March 25, 2008


The opinion of the court was delivered by: Chin, District Judge


In this securities case, plaintiff Telenor East Invest AS ("Telenor East") alleges that defendants committed insider trading, conducted an illegal tender offer, and filed misleading disclosure statements in connection with their purchase of shares in Open Joint Stock Company Vimpel-Communications ("VimpelCom"), a Russian telecommunications company traded on the New York Stock Exchange. The complaint charges five counts under the Securities Exchange Act of 1934 (the "Exchange Act").

Defendants move to dismiss the amended complaint pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), 15 U.S.C. §§ 78u-4(b)(1)-(3). In the alternative, they move to stay this action and to compel arbitration. For the reasons set forth below, the motion to stay and compel arbitration is denied and the motion to dismiss is granted in part and denied in part.


A. The Facts

The following facts are drawn from the amended complaint and the documents incorporated by reference. For purposes of the motion to dismiss, the facts alleged in the amended complaint are assumed to be true.

1. The Parties

Telenor East is a wholly-owned subsidiary of Telenor ASA, Norway's largest telecommunications provider and a corporation that invests in mobile telecommunication companies around the world. (Am. Compl. ¶¶ 8-9).

Defendants are Altimo Holdings & Investments Limited ("Altimo"), Eco Telecom Limited ("Eco Telcom"), CTF Holdings Limited ("CTF"), Crown Finance Foundation ("Crown"), and Rightmarch Limited ("Rightmarch"). Together, they comprise the Alfa Group Consortium (the "Alfa Group"), one of Russia's largest privately owned financial-industrial groups.*fn1 (Id. ¶¶ 10-15).

2. The Shareholders Agreement

Telenor East and Eco Telecom are VimpelCom shareholders. On May 30, 2001, they entered into an agreement (the "Shareholders Agreement") governing their nominating of candidates to VimpelCom's Board of Directors (the "Board"). (Id. ¶ 21). The Shareholders Agreement gave Telenor East and Eco Telecom each the right to nominate four candidates to the nine-member Board, provided that each named an independent as one of their nominees. (Id.; Sills Decl. Ex. C at § 4.01). The Shareholders Agreement specified, however, that if either party acquired between 44% and 50% of VimpleCom's voting capital stock, that party became a "Plurality Shareholder" and was not required to name an independent as one of its nominees. (Am. Compl. ¶ 21; Sills Decl. Ex. C at § 4.01). The Shareholders Agreement further provided that it would terminate if either party's ownership of voting capital stock rose above 50% or fell below 25%. (Sills Decl. Ex. C at Art. V(b)-(c)).

Section 6.13 of the Shareholders Agreement contained an arbitration clause, which provided:

Any and all disputes and controversies arising under, relating to or in connection with this Agreement shall be settled by arbitration by a panel of three (3) arbitrators under the United Nations Commission on International Trade law (UNCITRAL) Arbitration Rules then in force. (Id. at § 6.13).

3. The Parties' Ownership of VimpelCom Stock

In December 1998, Telenor East acquired approximately 25.7% of the voting capital stock of VimpelCom. (Am. Compl. ¶ 20). As of the filing of the amended complaint, Telenor East owned approximately 29.9% of VimpelCom's capital stock. (Id.). On or about November 5, 2001, Eco Telecom purchased approximately 5 million shares of VimpelCom stock. (Id. ¶ 22). Thereafter, Eco Telecom continued to increase its shares of VimpelCom stock so that as of August 29, 2006, it owned approximately 32.9% of VimpelCom's voting stock. (Id.). As of the date of the amended complaint, Eco Telecom's beneficial ownership of VimpelCom voting stock had increased to approximately 44.00001%. (Id. ¶ 12). Hence, from August 2006 to July 2007, Eco Telecom increased its ownership of VimpelCom's voting shares from 32.9% to 44.0001%.

4. Request for Approval to Acquire 60%

On May 26, 2005, Eco Telecom, Altimo, CTF, and Crown Finance (the "Alfa Reporting Persons") filed an amendment to their Securities and Exchange Commission ("SEC") 13D filing*fn2 that disclosed that Eco Telecom had requested approval from the Russian Federal Anti-Monopoly Service (the "FAS") to acquire 60% plus one share of VimpelCom. (Id. ¶ 39). The following month, they clarified that this request represented a defensive move and that they would only pursue majority control of VimpelCom if Telenor attempted to do so. (Id. ¶ 68).

5. The Rightmarch Transaction

On August 15, 2006, VimpelCom emailed its second quarter 2006 financial results to the Board's Finance Committee, of which Altimo Senior Vice President Oleg Malis was a member. (Id. ¶ 24). One week later, it emailed those results to the rest of the Board, whose members included Mikhail Fridman, Chairman of Altimo's Supervisory Group, and Alexey Reznikovich, Alitmo's CEO and a member of the Alfa Group's Supervisory Board. (Id.).

On September 1, 2006, VimpelCom released to the public its second quarter financial results, which showed substantial increases in subscribers, revenues, and net income. (Id. ¶ 34). Members of the VimpelCom Board who were controlled by defendants were in possession of this favorable, material information before it was made public. (Id.).

During the eight trading days between August 29, 2006 and September 8, 2006, VimpelCom ADSs traded very heavily, far above its average trading volume, and its closing price increased from $50.26 to $59.90. (Id. ¶ 25).

On September 6, the Alfa Reporting Persons filed a 13D/A that disclosed a transaction between Rightmarch and Jam Holding Asset Management Ltd. ("Jam"),*fn3 memorialized in a "Master Confirmation" dated August 30, 2006 (the "Rightmarch Transaction"). (Id. ¶ 27). Neither Rightmarch nor Jam joined in the filing. (Id. ¶ 31). The September 6 13D/A indicated that Jam had previously agreed to sell VimpelCom American Depositary Shares ("ADSs") in its possession to Rightmarch on any date between October 26, 2006 and January 1, 2007. (Id. ¶ 30). It did not disclose the price or number of ADSs Rightmarch intended to purchase from Jams. (Id.).

6. 2006 Russian Anti-Monopoly Law

On October 26, 2006, a Russian anti-monopoly law came into effect that would allow the Alfa Group to acquire up to 50% of VimpelCom's voting shares without the approval of the FAS. (Id. ¶ 33). In advance of that date, the Alfa Reporting Persons filed an October 10 13D/A explaining that they had entered the Rightmarch Transaction "through a wholly owned affiliate to attempt to assure the availability of additional Common Shares in VimpelCom should the Reporting Person[s] seek to acquire such shares as a result of the effectiveness of the new Anti-monopoly law." (Id. ¶ 35). In a November 22 13D/A, they reported that Eco Telecom had received 6,597,900 VimpelCom ADSs purchased by Jam. (Id. ¶ 37). They did not disclose the prices that either Eco Telecom or Jams had paid for those ADSs. (Id.).

7. The Eco Telecom-Deutsche Bank Transactions

In March 2007, the Alfa Reporting Persons filed a series of 13D/As that disclosed that Eco Telecom had entered into purchase agreements with Deutsche Bank to purchase VimpelCom ADSs. (Id. ¶¶ 41-47). Among them, a March 13 13D/A disclosed that Eco Telecom had issued $1.5 billion in bonds to Deutsche Bank, guaranteed by Altimo and secured by 9,349,999 shares of VimpelCom stock. (Id. ¶ 47). The next day, Altimo issued a press release stating that it intended to use the proceeds of the Deutsche Bank loan "to develop its investment projects in emerging mobile communications markets in Eurasia," particularly "in South and South East Asia." (Id. ¶ 51). A June 30, 2007 article quoted a Deutsche Bank spokesperson as stating, however, that $350 million of the loan was to refinance Altimo's debt, with "the rest" going to buy more shares in VimpelCom. (Id. ¶ 52).

On March 16, 2007, VimpelCom emailed its Board members, including Fridman, Rezinikovich, and Malis, its proposals and financial results for the fourth quarter and full year of 2006. (Id.). Five days later, before the information became public, the Alfa Reporting Persons filed a 13D/A indicating that Eco Telecom had acquired 4,915,200 VimpelCom ADSs through previously disclosed transactions with Deutsche Bank. (Id. ¶ 54). It also indicated that Eco Telecom had acquired additional shares through brokered transactions with other "significant shareholders" and open market purchases between March 15 and March 20, increasing its voting stock to 42.4%.*fn4 (Id.).

On June 13, 2007, after this action was commenced, the Alfa Reporting Persons filed a 13D/A disclosing the prices they had paid for ADSs referenced in earlier amendments. (Id. ¶ 59). Two weeks later, they reported that Rightmarch had acquired additional ADSs on June 25 and transferred them to Eco Telecom, bringing Eco Telecom's holdings of voting shares to slightly over 44%. (Id. ¶ 60).

B. Procedural History

Plaintiff filed a complaint in this Court on June 6, 2007, asserting that defendants had violated (1) Section 13(d) of the Exchange Act by filing false and misleading disclosure statements; (2) Section 13(e) by engaging in fraud in connection with a "going private" transaction; and (3) Section 14(d) by conducting a tender offer without making the necessary disclosures. In particular, it alleged that defendants had insufficiently disclosed the financial details of their transactions and their intent to acquire control of VimpelCom.

Telenor East filed an amended complaint on July 12, 2007, repeating its prior allegations, and charging also that defendants had violated Section 10(b) and Rule 10b-5 by buying shares while in possession of material non-public information, and Section 14(e) and Rule 14e-3 by doing so in connection with a tender offer. ...

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