The World in U.S. Courts: Spring 2013 - Securities
This case arose out of an alleged fraud concerning the overstatement of the assets of Satyam, an Indian public company with ordinary shares traded on Indian stock exchanges and American depositary shares (“ADSs”) traded on the New York Stock Exchange (“NYSE”). Some plaintiffs were former Satyam employees who acquired and exercised options to purchase Satyam ordinary shares of ADSs through various company employee stock option plans.
Defendants moved to dismiss the claim under Section 10(b) of the Securities Exchange Act regarding the alleged purchase of ordinary shares traded on the Indian exchanges. The plaintiff argued that their purchases constituted domestic transactions because the buy orders were placed in the U.S. and the injuries were suffered in the U.S. A district court in New York rejected this argument and dismissed the claims, holding that “[a]n investor’s location in the United States does not transform an otherwise foreign transaction into a domestic one.”
Defendants also moved to dismiss the Securities Exchange Act and Securities Act claims regarding the acquisition and/or exercise of options to purchase Satyam ordinary and ADS shares under the employee stock option plans. The court held that, to allege the existence of a domestic transaction, plaintiffs must allege facts indicating that irrevocable liability was incurred or that title to the ADSs was transferred within the United States. In dismissing those claims, the court found that the stock option plan documents showed that the relevant transactions and actual exercise of options to purchase the ADSs occurred in India. In particular, the options were not deemed to be exercised until Satyam received the exercise notice and payment in India The court held that these facts demonstrate that Satyam incurred irrevocable liability and title was transferred in India, notwithstanding the fact that the ADSs were traded on the NYSE.