United States Securities and Exchange Commission v. Passos

Background

The document is a pre-motion letter submitted for defendant Fernando Passos, represented by counsel. Passos is described as a Brazilian citizen and former chief financial officer of Brazilian company IRB Brasil Resseguros S.A. The Securities and Exchange Commission’s complaint asserts alternative claims that Passos violated or helped IRB violate Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

According to the complaint as summarized in Passos’s letter, the alleged scheme involved a false report that Berkshire Hathaway owned IRB stock. The alleged conduct included creating and sending an informal shareholder schedule, sending an email that purported to thank Berkshire Hathaway for an investment, urging IRB personnel to promote the report to Brazilian news media, and participating in a later call involving IRB’s chief executive officer and securities analysts. The letter states that the IRB stock was listed only in Brazil, was not registered with the Securities and Exchange Commission, and was not listed or traded on a United States market.

Arguments About Personal Jurisdiction

Passos sought dismissal under Federal Rule of Civil Procedure 12(b)(2), which concerns whether a court has personal jurisdiction over a defendant. He argued that the complaint did not establish any applicable basis for jurisdiction under New York law, the federal securities statute’s jurisdiction provisions, or the federal rule allowing jurisdiction over certain claims involving defendants not subject to any state’s courts.

Passos asserted that the significant conduct occurred in Brazil and that the two steps allegedly taken while he was in New York merely repeated earlier actions taken in Brazil. He also argued that the complaint did not adequately allege a connection between his United States conduct and publication of the report. As to alleged effects in the United States, he argued that the complaint did not allege losses by investors who bought IRB shares during the relevant period and that investors who already held shares could not have relied on the alleged misstatements to overpay for those shares.

Arguments About the Pleading

Passos also sought dismissal under Rule 12(b)(6), which concerns whether a complaint states a legally sufficient claim. He argued that the complaint did not identify Passos or IRB as the maker of the report, because Brazilian news media published it. He further argued that the complaint did not allege that he disseminated a prior material misstatement, did not identify him rather than IRB’s chief executive officer as the speaker during the March 2, 2020 call, and did not provide sufficient details about the time, place, and content of the alleged statements.

Passos additionally argued that the complaint did not allege a domestic securities transaction, that the alleged scheme was impermissibly foreign in nature, and that it did not adequately allege use of interstate commerce, the mail, or a national securities exchange.

Disposition

The court granted Passos’s request for a pre-motion conference. It scheduled a telephone conference concerning Passos’s proposed motion to dismiss for May 30, 2024, at 2:00 p.m. The court directed the parties to follow its civil-case rules and directed the clerk to terminate the pending motion at Docket No. 27. The opinion did not grant or deny the proposed motion to dismiss and did not resolve the Securities and Exchange Commission’s claims.