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Chechele v. Stanley

United States District Court, S.D. New York

September 26, 2012

Donna Ann Gabriele CHECHELE, Plaintiff,
v.
MORGAN STANLEY, and MS Subsidiaries 1 Through 10., Defendants and Gramercy Capital Corp., Nominal Defendant.

Page 298

James Austen Hunter, Hunter & Kmiec, New York, NY, for Plaintiff.

Jonathan K. Youngwood, Simpson Thacher & Bartlett LLP, New York, NY, for Defendants.

Alexander Max Feldman, Clifford Chance US, LLP, Jeff Edward Butler, New York, NY, for Nominal Defendant.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE, District Judge.

Plaintiff Donna Ann Gabriele Chechele brings this suit against Morgan Stanley (" Morgan Stanley" ) and Morgan Stanley Subsidiaries 1 through 10 (" MS Subsidiaries" ) (collectively, " MS Defendants" ), and nominal Defendant Gramercy Capital Corp. (" Gramercy" ), seeking to recover short-swing profits pursuant to Section 16(b) of the Securities Exchange Act of 1934 (the " Exchange Act" ), 15 U.S.C. § 78p(b). The MS Defendants have moved to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons stated below, the MS Defendants' motion will be granted.

BACKGROUND

I. STATUTORY BACKGROUND

" Under § 16(b) of the Exchange Act ... a corporation or security holder of tat corporation may bring suit against the officers, directors, and certain beneficial owners of the corporation who realize any profits from the purchase and sale, or sale and purchase, of the corporation's securities within any 6-month period." [1]

Page 299

Credit Suisse Securities (USA) LLC v. Simmonds, __ U.S. __, 132 S.Ct. 1414, 1417, 182 L.Ed.2d 446 (2012). " Short-swing trading is generally defined as ‘ the purchase and sale (or vice versa) of a company's stock within a six-month period by persons deemed to be ‘ insiders'....’ " Chechele v. Scheetz, 819 F.Supp.2d 342, 344 (S.D.N.Y.2011) (quoting Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir.2001)). " The statute imposes a form of strict liability and requires insiders to disgorge these ‘ short-swing’ profits even if they did not trade on inside information or intend to profit on the basis of such information." Simmonds, 132 S.Ct. at 1417 (citing Gollust v. Mendell, 501 U.S. 115, 122, 111 S.Ct. 2173, 115 L.Ed.2d 109 (1991)). Section 16(b) provides that suits must be brought within " two years after the date such profit was realized." 15 U.S.C. § 78p(b).

Although the Exchange Act does not define " beneficial owners," SEC regulations create a " two-tiered analysis of beneficial ownership" :

SEC Rule 16a-1(a)(1) provides that " [s]olely for purposes of determining whether a person is a beneficial owner of more than ten percent of any class of equity securities," the term " beneficial owner" means ... " any person who is deemed a beneficial owner pursuant to section 13(d) of the Act and the rules thereunder." 17 C.F.R. § 240.16a-1(a)(1). The borrowed definition from SEC Rule 13d-5(b)(1), promulgated under Section 13(d), provides, in relevant part:
[W]hen two or more persons agree to act together for the purpose of acquiring, holding, voting or disposing of equity securities of an issuer, the group formed thereby shall be deemed to have acquired beneficial ownership ... of all equity securities of that issuer beneficially owned by any such persons.
17 C.F.R. § 240.13d-5(b)(1) (emphasis added). Accordingly, under Section 13(d) and the corresponding regulations, " if two or more entities agree to act together for any of the listed purposes, a ‘ group’ is ‘ thereby’ formed." Roth v. Jennings, 489 F.3d 499, 507-08 (2d Cir.2007).

Scheetz, 819 F.Supp.2d at 346 (quoting Morales, 249 F.3d at 122).

II. THE COMPLAINT

Chechele is a New Jersey resident and a stockholder in nominal Defendant Gramercy, a Maryland corporation with its principal offices in New York, New York. (Cmplt. ¶¶ 3-4) At all relevant times, the common stock of Gramercy was registered pursuant to Section 12 of the Exchange Act. ( Id. ¶ 10)

Defendant Morgan Stanley, a multinational bank holding company that provides financial services, is a Delaware corporation with its principal offices in New York, New York. ( Id. ¶¶ 5, 13) Defendant MS Subsidiaries 1 through 10 are " direct or indirect subsidiar[ies] of Morgan Stanley that engaged in short-swing transactions in [Gramercy's] common stock." ( Id. ¶ 6) The Complaint further alleges that SSF III Gemini, LP (" Gemini" ) " is an indirect ...


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