United States District Court, S.D. New York
For Atlantica Holdings, Inc., Baltica Investment Holding, Inc., Blu Funds, Inc., Allan Kiblisky, Anthony Kiblisky, Jacques Gliksberg, Plaintiffs: Alexis Gena Stone, Brett D. Jaffe, Scott Douglas Thomson, Cohen & Gresser, LLP, New York, NY.
For Sovereign Wealth Fund Samruk-Kazyna JSC, also known as National Welfare Fund Samruk-Kazyna, Defendant: Jonathan Joseph Walsh, Joseph D. Pizzurro, LEAD ATTORNEYS, Curtis, Mallet-Prevost, Colt & Mosle, LLP(NYC), New York, NY.
OPINION AND ORDER
JESSE M. FURMAN, United States District Judge.
The present case is brought on behalf of Plaintiffs Altantica Holdings, Inc. (" Atlantica" ), Baltica Investment Holding, Inc. (" Baltica" ), and Blu Funds, Inc. (" Blu" ), all Panamanian corporations, and Allan Kiblisky, Anthony Kiblisky, and Jacques Gliksberg, all United States citizens. Defendant Sovereign Wealth Fund Samruk-Kazyna (" S-K Fund" ) is a sovereign wealth fund owned and operated by the Republic of Kazakhstan and the majority shareholder of non-party B.T.A. Bank JSC (" B.T.A. Bank" ), one of the largest banks in Kazakhstan. Plaintiffs, purchasers of subordinated debt securities issued by B.T.A. Bank as part of a restructuring plan, allege securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 (the " Exchange Act" ), 15 U.S.C. § § 78j, 78u.
S-K Fund now moves to dismiss pursuant to (1) Federal Rule of Civil Procedure 12(b)(1), on the ground that the Court lacks subject-matter jurisdiction; (2) Federal Rule of Civil Procedure 12(b)(2), on the ground that the Court lacks personal jurisdiction over S-K Fund; (3) Federal Rule of Civil Procedure 12(b)(6), on the ground that the Amended Complaint fails to state a claim; and (4) Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (" PSLRA" ), 15 U.S.C. § § 78u-4(b)(1)-(b)(3)(A), on the ground that Plaintiffs fail to plead fraud with particularity. S-K Fund also moves to dismiss Plaintiffs' control-person claims for failure to state a claim. For the reasons discussed below, Defendant's motion is GRANTED in part and DENIED in part.
The following facts, which are taken from the Amended Complaint and documents it references, are construed in the light most favorable to Plaintiffs. See, e.g., Aurecchione v. Schoolman Transp. Sys., Inc., 426 F.3d 635, 638 (2d Cir. 2005). In considering Defendant's motion under Rule 12(b)(1), the Court has also considered facts set forth in affidavits submitted by the parties. See, e.g., Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000).
S-K Fund is a sovereign wealth fund owned and operated by the Republic of Kazakhstan. (Am. Compl. ¶ 14). S-K Fund controls more than 500 companies in a diverse range of areas, including banking, oil and gas, mining, chemicals, transport, communications, and electricity. ( Id.). On February 3, 2009, S-K Fund invested 212 billion Kazakhstani Tenge, or approximately $1.5 billion, in B.T.A. Bank. (Am. Compl. ¶ 26). In exchange, S-K Fund took a 75.1% stake in B.T.A. Bank and gained a seat on B.T.A. Bank's Management Board. (Am. Compl. ¶ 26). Thereafter and at all times relevant to this case, S-K Fund controlled B.T.A. Bank and directed its affairs. (Am. Compl. ¶ ¶ 66-67; see also Decl. Francis Fitzherbert-Brockholes (Docket No. 18) (" F-B Decl." ), Ex. A (" Informational Mem." ), at 120).
In April 2009, B.T.A. Bank announced that it had ceased payment of principal on its outstanding financial obligations. (Am. Compl. ¶ 27). In the aftermath of that announcement, and at S-K Fund's direction, B.T.A. Bank began planning to restructure its debt; those efforts culminated in 2010 (the " 2010 Restructuring" ), when B.T.A. Bank issued subordinated debt securities (the " Notes" ). (Am. Compl. ¶ ¶ 28, 32). In connection with the 2010 Restructuring, B.T.A. distributed an " Information Memorandum" -- a document 669 pages in length, not including exhibits -- detailing the proposed restructuring, the terms of the Notes, and the financial prospects of B.T.A. Bank going forward. (Am. Compl. ¶ 29). The Information Memorandum was sent to all B.T.A. Bank creditors -- a group that included Atlantica and Baltica, but no other Plaintiffs. (Am. Compl. ¶ ¶ 29, 33-34). Although Defendant contends that the Information Memorandum was " available" only to those investors who affirmed that they were either (1) both outside the United States and were not United States residents or (2) United States persons permitted by the terms of the Notes to purchase them ( see Mem. Law Supp. Def.'s Mot. To Dismiss Am. Compl. (" Def.'s Mem." ) (Docket No. 17) 5-6; accord Information Mem. i-ii), the document is (and was) available on the Internet. (F-B Decl. ¶ 10; Pls.' Mem. Law Opp'n Def.'s Mot. To Dismiss Am. Compl. (" Pls.' Mem." ) (Docket No. 21) 7
n.1; see Information Mem., available at http://bta.kz/files/IM_2010.pdf).
By its terms, the 2010 Restructuring was not legally effective until approved by several classes of B.T.A. Bank's creditors as well as a specialized financial court sitting in Almaty, Kazakhstan. (F-B Decl. ¶ ¶ 16-20). The creditors, including Atlantica and Baltica, approved the restructuring on May 28, 2010. (Am. Compl. ¶ 30). Thereafter, B.T.A. Bank issued Notes to United States persons as an exempt offering, which meant that purchases of the Notes by United States persons were limited to certain " qualified buyers," as defined by Securities and Exchange Commission Rule 144A, as well as certain high net-worth individuals. (Am. Compl. ¶ ¶ 32, 34). The Notes were also subject to transfer restrictions: They could be transferred only to " qualified buyers," as defined under Rule 144A, or to United States persons, as defined by Rule 902 of Regulation S. See 17 C.F.R. § 230.902(k)(i). (Information Mem. 311-12; F-B Decl. ¶ ¶ 23-27). By the terms of the Notes, any other transfer would be void ab initio. (Information Mem. 311). Additionally, the Notes were listed only on the Kazakhstan and Luxembourg Stock Exchanges; they never traded on any United States exchange. (F-B Decl. ¶ 23). At all relevant times, the Notes themselves were held at the London offices of Bank of New York Mellon and could be transferred by beneficial owners only at the order of a Direct Participant. ( See F-B Decl. ¶ ¶ 22, 26-28). Thus, although investors could place orders to purchase Notes from within the United States, such orders were cleared and settled by clearinghouses in Europe. (F-B Decl. ¶ 21).
These overseas connections notwithstanding, eighty percent of all securities issued pursuant to the 2010 Restructuring -- a set that included but was not limited to the Notes at issue in this case -- were denominated in United States dollars. (Am. Compl. ¶ 32). Additionally, the Information Memorandum provided that principal and interest payments on the Notes would be made to the payee's bank in New York City. (Am. Compl. ¶ 19). Moreover, as a practical matter, it was relatively straightforward for United States investors to obtain the Notes. For example, any Direct Purchaser -- such as UBS, Plaintiffs' agent -- could transfer beneficial ownership of any Note held on its books from one of its customers to another. Perhaps as a result of those facts, twenty-five percent of the Notes issued during the 2010 Restructuring were purchased by investors in the United States. (Am. Compl. ¶ 32).
Separate and apart from these connections to the United States, Plaintiffs generally allege that Defendant marketed the Notes extensively in the United States. (Am. Compl. ¶ ¶ 19-20). In particular,
Plaintiffs allege -- and Defendant does not dispute -- that S-K Fund sent representatives to the United States to meet with investors and to assure them of the health of B.T.A. Bank's balance sheet in the wake of the 2010 Restructuring. ( Id.; see Def.'s Mem. 20; Pls.' Mem. 20). Additionally, the Amended Complaint alleges that Defendant " established a subsidiary for the purpose of marketing [its] investment in B.T.A. Bank to potential investors including . . . investors in the United States." (Am. Compl. ¶ 19). Defendant questions the relevance of that allegation to Plaintiffs' claims, but notably it does not dispute the allegation itself. ( See Stipulation (Docket No. 20), at 2).
Plaintiffs purchased or otherwise obtained the Notes between 2010 and 2012. (Am. Compl. ¶ ¶ 7-12, 24; id. Ex. A). As noted, Atlantica and Baltica -- the only Plaintiffs who were creditors of B.T.A. Bank in 2010 -- participated in the 2010 Restructuring by exchanging their existing B.T.A. Bank-issued debt for the Notes. (Am. Compl. ¶ 33). The rest of the Plaintiffs, along with Atlantica and Baltica, acquired Notes after the 2010 Restructuring through purchases on the secondary market. (Am. Compl. ¶ 34). For example, Atlantica and Baltica simply placed an order in Florida with UBS, which in turn transmitted the order to its broker-dealer in New York, which sent client funds to its back office (the location of which is not referenced in the Amended Complaint), where the order was filled and the Notes were transferred. (Am. Compl. ¶ ¶ 7-8). Notably, Plaintiffs acquired the Notes even though they were either not qualified buyers or were United States persons -- that is, even though they were not within the universe of investors eligible to buy the Notes pursuant to the terms of the Information Memorandum.
Despite the Information Memorandum's rosy projections, B.T.A. Bank's financial position continued to deteriorate after the 2010 Restructuring. ( See Am. Compl. ¶ ¶ 35-50). Meanwhile, Defendant -- through its officers and agents -- and B.T.A. Bank made various public statements, which Plaintiffs allege were false and misleading. ( See Am. Compl. ¶ ¶ 51-56). In January 2012, B.T.A. Bank again defaulted on its debt obligations, prompting another round of restructuring (the " 2012 Restructuring" ). (Am. Compl. ¶ 57). According to Plaintiffs, Defendant and B.T.A. Bank made additional false and misleading statements after this default. In July 2012, B.T.A. Bank filed a bankruptcy petition, ...