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Atlantica Holdings, Inc. v. BTA Bank JSC

United States District Court, S.D. New York

January 12, 2015

ATLANTICA HOLDINGS, INC. et al., Plaintiffs,
BTA BANK JSC, Defendant.


JESSE M. FURMAN, District Judge.

This is the second of two related securities fraud cases pending before this Court arising out of the restructuring of Defendant BTA Bank JSC ("BTA Bank" or the "Bank"), one of the largest banks in the Republic of Kazakhstan. Plaintiffs are Atlantica Holdings, Inc. ("Atlantica"), Baltica Investment Holding, Inc. ("Baltica"), and Blu Funds, Inc. ("Blu Funds"), all Panamanian corporations, and Allan Kiblisky, Anthony Kiblisky, and Jacques Gliksberg, all United States Citizens. They purchased subordinated debt securities in BTA Bank, and allege that the Bank violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j, and Rule 10-b. (Am. Compl. (Docket No. 32)).

Pursuant to Rules 12(b)(1), 12(b)(2) and 12(b)(6) of the Federal Rules of Civil Procedure, the Bank seeks to dismiss the Amended Complaint (the "Complaint") in its entirety for lack of subject-matter jurisdiction, lack of personal jurisdiction, and failure to state claim upon which relief can be granted. (Docket No. 42). In the alternative, the Bank seeks to compel arbitration pursuant to the Federal Arbitration Act ("FAA"). ( Id. ). For the reasons explained below, the motion is GRANTED in part and DENIED in part.


The facts relevant to this motion, taken from the Complaint and assumed to be true, see, e.g., Kalnit v. Eichler, 264 F.3d 131, 135 (2d Cir. 2001), can be summarized briefly.[1] As noted, Plaintiffs purchased subordinated debt securities in BTA Bank between 2010 and 2012 in connection with two debt and capital restructurings that the Bank underwent during that period. (Am. Compl. ¶¶ 8-14). The Bank's first restructuring was completed in 2010 (the "2010 Restructuring" or "Restructuring"), and followed the Bank's announcement in April of the previous year that it had ceased payment of principal on all of its outstanding financial obligations. ( Id. ¶¶ 28-29). As part of that restructuring, the Bank issued Subordinated Notes to its existing debt-holders, including Plaintiffs Atlantica and Baltica, in exchange for their prior interests in the bank. ( Id. ¶¶ 34, 36). Although Plaintiffs do not allege that the Notes were ever listed on a United States exchange, they do allege that the Notes were issued in the United States in an exempt offering, and that the Notes could be re-sold to certain qualified purchasers in the United States in private, off-exchange transfers. ( Id. ¶¶ 34, 37-38). Further, 80% of the Notes were denominated in United States dollars, and 17% of those were purchased by United States investors. ( Id. ¶ 35).

In connection with the 2010 Restructuring, the Bank distributed an Information Memorandum to its existing creditors and potential new investors, and posted it online. (Am. Compl. ¶¶ 30-31). Plaintiffs contend that the Information Memorandum was materially misleading it two ways. First, it allegedly failed to disclose a scheme that Plaintiffs call the "Negative Carry Swap, " in which the Sovereign Wealth Fund Samruk-Kazyna (the "S-K Fund"), a fund owned and operated by the Republic of Kazakhstan and the Bank's majority shareholder at all times relevant to this action (not to mention, the defendant in the related action), "siphon[ed] hundreds of millions of dollars from BTA Bank" by concealing improper dividends as interest payments. ( Id. ¶¶ 27, 33, 40-47, 47). When the truth about the Negative Carry Swap came to light, Plaintiffs allege, the value of the Subordinated Notes plummeted. ( Id. ¶ 52). Second, the Information Memorandum stated that the Bank believed the Restructuring (1) would allow the Bank to achieve "the necessary levels of capital ratios" because of the "liquidity support" that would be provided by S-K Fund, (2) would enable the Bank to "continue as a going concern, " and (3) was undertaken by S-K fund "with a goal of maximizing long term value." ( Id. ¶¶ 54-55).

Contrary to the Information Memorandum's predictions, however, the 2010 Restructuring did not end the Bank's financial woes. In January 2012, less than two years after the 2010 Restructuring was completed, the Bank defaulted on its debt obligations, requiring it to undergo a second restructuring (the "2012 Restructuring"). ( Id. ¶ 57). Plaintiffs allege that the Bank made additional material misrepresentations in the period leading up to the second restructuring. Specifically, Plaintiffs assert that the Bank improperly concealed its liability for "Recovery Units" that had been issued to some of the Bank's creditors in connection with the 2010 Restructuring. ( Id. ¶ 59). The Recovery Units entitled those creditors to 50% of the assets that the Bank was seeking to recover from its previous management team. ( Id. ¶ 61). If, however, the Bank defaulted on its senior debt - according to Plaintiffs, a virtual certainty - the units became an unconditional $5 billion obligation. ( Id. ¶¶ 61-62). Plaintiffs allege that when this information was disclosed, the value of the Subordinated Notes fell even further, to less than 10% of their face value. ( Id. ¶¶ 52, 65).

Based on these alleged misrepresentations, Plaintiffs sued the S-K Fund for securities fraud in December 2012. (Case No. 12-CV-8852 (JMF), Docket No. 1). Plaintiffs did not name BTA Bank as a defendant at that time because it was a debtor in a then-pending bankruptcy case. (Am. Compl. ¶ 7). In May 2013, the S-K Fund moved to dismiss the other case, arguing that S-K Fund was entitled to sovereign immunity, that the Complaint failed to state a claim under federal securities law because it did not allege any domestic transactions, and that the Complaint failed to adequately allege reliance, loss causation or scienter. (Case No. 12-CV-8852 (JMF), Docket No. 15). By Opinion and Order entered March 10, 2014, the Court rejected most of the S-K Fund's claims, including its claim of foreign sovereign immunity. ( Id., Docket No. 28). The S-K Fund appealed the Court's decision on sovereign immunity, and the case is currently stayed pending resolution of that appeal. ( Id., Docket No. 35). In August 2013, about a month after the Bank was discharged from Bankruptcy, Plaintiffs filed this lawsuit. (Docket No. 1; Am. Compl. ¶ 7).


A plaintiff bears the burden of establishing a court's personal jurisdiction over a particular defendant. See, e.g., Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34 (2d Cir. 2010). In the absence of discovery or an evidentiary hearing, a plaintiff seeking to defeat a motion to dismiss pursuant to Rule 12(b)(2) for absence of personal jurisdiction need only make a prima facie showing that jurisdiction exists. See, e.g., Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353, 355 (2d Cir. 2005). Such a showing "entails making legally sufficient allegations..., ' including an averment of facts that, if credited, would suffice'" to establish that jurisdiction exists. Penguin Grp., 609 F.3d at 35 (quoting In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 206 (2d Cir. 2003) (per curiam)). A court must therefore "view[] all facts in the light most favorable to the non-moving party." LLC v. Google, Inc., 647 F.3d 472, 475 (2d Cir. 2011).

A Rule 12(b)(6) motion, by contrast, tests the legal sufficiency of the allegations in a complaint. See ATSI Commnc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). A claim will survive a 12(b)(6) motion only if the plaintiff alleges facts sufficient "to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). A plaintiff must show "more than a sheer possibility that a defendant acted unlawfully, " id., and cannot rely on mere "labels or conclusions" to support a claim. Twombly, 550 U.S. at 555. If the plaintiff's pleadings "have not nudged [his or her] claims across the line from conceivable to plausible, [the] complaint must be dismissed." Id. at 570.

Finally, because they allege securities fraud, Plaintiffs must also satisfy the heightened pleading requirements of both Rule 9(b), which requires that the circumstances constituting fraud be "state[d] with particularity, " Fed.R.Civ.P. 9(b), and the PSLRA, which requires that scienter - that is, a defendant's "intention to deceive, manipulate, or defraud" - also be pleaded with particularity, Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007) (internal quotation marks omitted). To satisfy Rule 9(b), a plaintiff "must (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 108 (2d Cir. 2012) (quoting Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004)). To satisfy the PSLRA, a complaint must, "with respect to each act or omission alleged to [constitute securities fraud], state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.'" ATSI Commc'ns, Inc., 493 F.3d at 99 (quoting 15 U.S.C. § 78u-4(b)(2)).


In its motion to dismiss, the Bank argues that (1) Plaintiffs lack standing; (2) the Court lacks personal jurisdiction over the Bank; (3) Plaintiffs' claims are subject to arbitration; (4) Plaintiffs fail to state a claim for securities fraud because they do not allege a domestic transaction; and (5) Plaintiffs have not adequately pleaded reliance, loss causation, or scienter. (Docket Nos. 42, 43). The Court will address each of those ...

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