Overview
In an opinion issued yesterday, Judge Furman allowed the majority of securities fraud claims against a state-owned sovereign wealth fund in Kazakhstan to proceed, denying the fund's motion to dismiss on sovereign immunity and other grounds. The plaintiffs purchased notes in a Kazakh bank majority owned by the fund. The notes were sold only over the Kazakhstan and Luxembourg stock exchanges, but over 80% of the notes were denominated in U.S. dollars. Recognizing that state actors are generally immune to suit in a U.S. court, Judge Furman held that the sovereign wealth fund's actions fit the "commercial activities" exception to the rule:
As an initial matter, there is no dispute that the nature of the activity engaged in by Defendant was “commercial,” as opposed to sovereign, in nature. (See Pls.’ Mem. 17 (noting this fact)). In addition, Plaintiffs’ claims are based upon a course of conduct by Defendant that created the direct effects within the United States. Defendant plainly contemplated investment by United States persons and indeed successfully subscribed twenty-five percent of the Notes offering with individuals within the United States. (Am. Compl. ¶ 32). Defendant also created a subsidiary to market the Notes to, among others, United States investors. (Id.) Additionally, Defendant created the Information Memorandum outside the United States and sent it to both qualified buyers in the United States and Direct Purchasers who acted as broker-dealers for smaller investors in the United States (not to mention, made it accessible to anyone in the United States via the Internet, where the Memorandum was freely available). (See Am. Compl. ¶ 29; F-B Decl. ¶ 10; Def.’s Mem. 5). And finally, according to the Amended Complaint, Defendant made a series of false or misleading statements about the financial health of BTA Bank that, when the dust settled, left holders of the Notes — including many United States investors — with assets worth less than ten percent of their face value. (Am. Compl. ¶¶ 50, 65). Combined, Plaintiffs have come forward with sufficient evidence, unrebutted by Defendant, to show that their claims are based upon Defendant’s commercial activity outside the United States having direct effects within this country.Judge Furman also denied the majority of the fund's arguments that plaintiffs had failed to state a claim for securities fraud, including based on the Supreme Court's Morrison v. National Australia Bank Ltd., which limited the international scope of 10(b) claims. Judge Furman held that the plaintiffs had adequately pled that they "incurred irrevocable liability within the United States to take and pay for" the securities at issue, hewing closely to the Supreme Court's standard from Morrison. Judge Furman did dismiss the claims of certain plaintiffs as to alleged misstatements that occurred after those plaintiffs had already acquired their notes.