Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk-Kazyna JSC

Background

Three Panamanian corporations—Atlantica Holdings, Inc., Baltica Investment Holding, Inc., and Blu Funds, Inc.—sued Sovereign Wealth Fund Samruk-Kazyna and BTA Bank. The plaintiffs had purchased BTA Bank securities issued in connection with a 2010 debt restructuring and later bought additional securities. They alleged securities fraud under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

The claims focused on an undisclosed term deposit that Samruk-Kazyna created with BTA Bank as a sinking fund to help satisfy Samruk-Kazyna’s future obligation on certain bonds. Plaintiffs argued that the deposit created harmful negative carry for BTA Bank and that defendants misled investors about dividends, the restructuring’s effect on BTA Bank’s viability and capital levels, Samruk-Kazyna’s willingness to support BTA Bank, and BTA Bank’s potential liability on Recovery Units. BTA Bank later entered a second restructuring, and plaintiffs lost part of their investments.

Defendants moved for summary judgment on all claims, meaning they asked the court to decide the case without a trial because no legally sufficient dispute required one. Plaintiffs moved for partial summary judgment. The parties also filed motions concerning expert testimony, including a motion to strike a reply declaration from plaintiffs’ expert William P. Hrycay.

Material Misrepresentation or Omission

The court held that no reasonable factfinder could determine that the challenged statements were material misrepresentations or omissions.

First, the court rejected plaintiffs’ argument that payments associated with the deposit and the guarantee of BTA Bank’s financing were disguised dividends. The court reasoned that Samruk-Kazyna received those payments for financial services and financing it provided, not because it owned BTA Bank equity. Plaintiffs identified no evidence linking the interest rate or guarantee fee to Samruk-Kazyna’s ownership stake or the promise concerning dividends.

Second, the court rejected the claims based on statements in the 2010 information memorandum that the restructuring would allow BTA Bank to continue as a going concern and that the bank expected to meet required capital ratios. The court treated those statements as forward-looking statements. It concluded that plaintiffs had not shown that the statements were objectively false when made. The deposit provided BTA Bank with additional capital in the short term, and BTA Bank continued as a going concern until 2014. The record also showed that BTA Bank complied with capital requirements until Recovery Unit holders accelerated their claims in April 2012. Plaintiffs did not provide enough evidence that the deposit or its associated negative carry caused the second restructuring.

Third, the court rejected claims based on public statements by Samruk-Kazyna representatives in 2011 and 2012. Plaintiffs did not identify evidence that the statements predicting no second restructuring or bankruptcy were made with actual knowledge that they were false. The court also found that statements about future support were not misleading because Samruk-Kazyna did provide support during the 2012 restructuring.

Fourth, the court rejected claims based on BTA Bank’s January and March 2012 presentations about Recovery Unit liability. The January presentation disclosed the basis of its calculation and did not purport to assess the likelihood of acceleration. The March presentation warned that the projected liability did not include a possible increase resulting from acceleration. The court also found that acceleration was not inevitable at the time of the presentations.

Loss Causation

The court separately held that plaintiffs could not establish loss causation, which requires proving that the alleged misconduct caused the economic losses. The court found that plaintiffs had not shown that the concealed risk from the deposit materialized and caused BTA Bank’s 2012 financial collapse. Instead, the record identified other contributing factors, including broader financial problems and the acceleration of the Recovery Units.

The court also found that plaintiffs’ expert did not adequately separate losses caused by the alleged fraud from losses caused by other factors. Plaintiffs’ later-filed reply declaration attempted to provide that analysis for the first time, after discovery had closed. The court granted defendants’ motion to strike the declaration to the extent it disaggregated losses. The court did not award monetary sanctions.

Because plaintiffs could not establish a primary violation of Section 10(b), the court also granted summary judgment against their controlling-person claims under Section 20(a).

Disposition

Judge Jesse M. Furman granted defendants’ motion for summary judgment, denied plaintiffs’ motion for partial summary judgment, and granted in part defendants’ motion to strike the Hrycay reply declaration. The court denied all other motions as moot. It directed the parties to show cause if materials then under seal should remain sealed or redacted, and directed the clerk to terminate the listed motions and close the cases.