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

477 F.Supp.3d 88

ATLANTICA HOLDINGS, INC., et al., Plaintiffs,

v.SOVEREIGN WEALTH FUND SAMRUK-KAZYNA JSC, Defendant.

Atlantica Holdings, Inc., et al., Plaintiffs,

v.BTA Bank JSC, Defendant.

12-CV-8852 (JMF)

13-CV-5790 (JMF)

United States District Court, S.D. New York.

Signed August 5, 2020

Michael B. de Leeuw, Martin S. Bloor, Matthew Lawrence Elkin, Tamar Schwartz Wise, Cozen O'Connor, New York, NY, for Plaintiffs.

Brian Lee Muldrew, Bruce G. Vanyo, Jason Christopher Vigna, Katten Muchin Rosenman, LLP, Robert Allen Horowitz, Greenberg Traurig, LLP, New York, NY, Jason Harris Kislin, Louis Smith, Greenberg Traurig LLP, Florham Park, NJ, for Defendant.

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:

In these long-pending related cases, three Panamanian corporations — Atlantica Holdings, Inc. ("Atlantica"), Baltica Investment Holding, Inc. ("Baltica"), and Blu Funds, Inc. ("Blu") (collectively, "Plaintiffs") — bring suit against Sovereign Wealth Fund Samruk-Kazyna ("S-K Fund"), a sovereign wealth fund owned and operated by the Republic of Kazakhstan, and BTA Bank JSC ("BTA Bank"), a Kazakhstani bank in which S-K Fund holds a majority stake. Plaintiffs, purchasers of subordinated debt securities issued by BTA Bank as part of a restructuring plan, allege securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a). Defendants now move, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment on all claims, and Plaintiffs move for partial summary judgment. Both sets of parties also move to exclude the others’ experts. For the reasons that follow, Defendants’ motion for summary judgment is GRANTED, and Plaintiffs’ motion for partial summary judgment is DENIED. Defendants’ motion to strike a declaration filed by one of Plaintiffs’ experts is GRANTED in part, and the remainder of the motions to exclude are DENIED as moot.

BACKGROUND

The relevant facts, taken from the admissible materials submitted by the parties, are undisputed unless otherwise noted. See, e.g. , Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 597 F.3d 84, 86 (2d Cir. 2010).

Until 2008, BTA Bank was one of the largest banks in Kazakhstan. See ECF No. 216 ("Pls.’ UF Response"), ¶¶ 24-26, 30-31.¹ In 2008, the global financial crisis arrived in Kazakhstan and battered the country's banking sector, causing instability in the country's capital markets, compromising liquidity among the country's banks, and leading to tighter credit conditions. Id. ¶ 24. BTA Bank was not immune to these effects: According to some reports, BTA Bank was unable to meet some customers’ withdrawal requests. See id. ¶ 52.

On November 25, 2008, the Kazakhstani government announced a plan to stabilize the country's economy and financial system (the "Stabilization Plan"). See id. ¶ 25. The Plan was implemented in large part by S-K Fund, which had been formed less than a month earlier to bail out struggling banks. See id. ¶¶ 44-45. Generally, the plan was for S-K Fund to inject significant liquidity into the struggling banks in exchange for equity. See id. ¶ 46. But S-K Fund was not alone. The Kazakhstani government entered into an agreement with the National Bank of the Republic of Kazakhstan ("NBK"), the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations ("FMSA"), and BTA Bank to coordinate their efforts to stabilize the Kazakhstani economy. Id. ¶ 48.

As part of the Stabilization Plan, the Kazakhstani government asked S-K Fund to secure an equity stake in BTA Bank. See id. ¶ 46. Negotiations between S-K Fund and BTA began in the fall of 2008 and continued into the first months of 2009, when the Fund invested 212 billion Kazakhstani tenge (the national currency of Kazakhstan, hereinafter abbreviated "KZT") in BTA Bank, in exchange for a 75.1% equity stake. See id. ¶¶ 58-59. After acquiring shares of BTA Bank, S-K Fund replaced the majority of BTA Bank's board of directors. See id. ¶¶ 61-65.

BTA Bank, like other Kazakhstani banks, also agreed to sell securities to NBK and later buy them back at a slightly higher price. See id. ¶¶ 70-71, 73-74. This "repo transaction" (the "NBK Repo") was intended to provide BTA Bank with short-term liquidity. See id. ¶ 73. But BTA Bank was unable to offer NBK security for the financing, as it was a "defaulted bank" in early 2009, and its bonds were effectively worthless. See id. ¶¶ 76-77. In order to provide the necessary collateral, S-K Fund exchanged bonds with BTA Bank. See id. ¶ 78. S-K Fund gave BTA Bank bonds with a notional value of KZT 645 billion (the "S-K Bonds"). See id. ¶¶ 79-80. The S-K Bonds had a four percent coupon, which was not accrued, but instead paid by S-K Fund to BTA. See id. ¶ 80-81. In the first nine months of 2009, S-K Fund paid BTA Bank more than KZT 20 billion on the S-K Bonds. See id. ¶ 82. BTA Bank issued its own bonds, whose notional value was also KZT 645 billion and which had a nine percent coupon, to S-K Fund (the "BTA Bonds"). See id. ¶¶ 79, 83. Unlike the S-K Bonds, the BTA Bonds’ interest accrued, so BTA Bank did not pay S-K Fund any interest on the BTA Bonds. See id. ¶ 84. Both the S-K Bonds and the BTA Bonds were to reach maturity in 2024. See id. ¶ 218. BTA Bank used the S-K Bonds as collateral to obtain financing from NBK. See id. ¶ 86. S-K Fund also guaranteed the debt BTA Bank incurred in the NBK Repo (the "S-K Guarantee"). See id. ¶ 202.

At or about the same time, BTA Bank discovered certain irregularities in its loan portfolio. See id. ¶ 88. BTA Bank retained KPMG London to help investigate the suspicious loans. See id. ¶¶ 91-92. FMSA conducted its own investigation. See id. ¶ 94. These investigations revealed a significant number of loans to companies affiliated with BTA Bank's former management. See id. ¶ 95. The loan terms were favorable to those companies, the security was either inadequate or non-existent, and many records associated with the transactions were missing. See id. ¶¶ 95-96. BTA Bank estimates that its former management stole at least $6 billion in connection with this fraud. See id. ¶ 109.

It was hoped that the infusion of capital and liquidity from S-K Fund and NBK would enable BTA Bank to maintain compliance with requirements imposed on Kazakhstani banks by FMSA regulation despite the financial crisis and the prior management's fraud. Within months, however, BTA Bank had breached various FMSA requirements. On April 1, 2009, BTA Bank "breached the FMSA requirement that [it] maintain an exposure of less than 10 [percent] of its equity capital with respect to any single borrower." ECF No. 207-3 ("2010 IM"), at 156; Pls.’ UF Response ¶ 110. Later that month, BTA Bank announced that it would cease making payments on the principal of all of its debt obligations. Pls.’ UF Response ¶ 111. BTA Bank then received notices from certain of its creditors that they were accelerating the debt owed to them and, in response, BTA Bank ceased all principal and interest payments on existing debt until it could reach agreement with its creditors on restructuring. Id. ¶¶ 113-14. Many borrowers stopped making payments to BTA Bank and, in May of 2009, BTA Bank breached FMSA's liquidity requirements. Id. ¶ 116. BTA Bank breached FMSA's capital adequacy ratio requirements on June 1, 2009. 2010 IM at 155.

The upshot is that BTA Bank needed to restructure its debt, and it endeavored to do so in 2009 and 2010 (the "2010 Restructuring"). It presented a preliminary restructuring plan on June 10, 2009, in accordance with an agreement into which it had entered with FMSA after it had breached the regulatory requirements. See Pls.’ UF Response ¶¶ 117-18. In July 2009, BTA Bank formed a "Steering Committee" consisting of certain creditors who would negotiate the restructuring on behalf of all creditors. See id. ¶ 121. BTA Bank hired an assortment of advisors to assist in its restructuring. It hired Lazard Fréres & Co. ("Lazard") and UBS AG as financial advisors; Deloitte Touche Tohematsu Ltd. ("Deloitte"), PricewaterhouseCoopers ("PwC"), KPMG, and Ernst & Young LLP as independent auditors; and White & Case LLP, Baker & McKenzie LLP, Field Fisher Waterhouse LLP, Lovells, and Allen & Overy LLP as its legal counsel. Together with its advisors and the creditors on the Steering Committee, BTA Bank worked on a restructuring plan throughout the remainder of 2009 and into 2010. See id. ¶¶ 122-24.

It was at about this time that Plaintiffs — who share a principal, Claudio Khamis, see id. ¶¶ 269, 281-83 — began discussing purchasing BTA Bank securities. See id. ¶ 292. On August 3, 2009, Atlantica paid just $1,068,755.25 for TuranAlem (which had by that time become BTA Bank) bonds with a face value of $5,000,000. See id. ¶ 294. The same day, Baltica purchased TuranAlem bonds with a face value of $4,000,000 at a similarly discounted price — just $855,005.25. See id. ¶ 295. Atlantica and Baltica again purchased TuranAlem bonds at significantly discounted rates in September 2009 and January and April 2010, collectively accumulating bonds with a face value of $21,200,000, for which the two companies paid less than $6,000,000. See id. ¶¶ 306-07, 309-12.

Negotiations regarding the restructuring plan concluded later in April 2010. See id. ¶ 167. On May 1, 2010, the plan's terms were described in an information memorandum (the "2010 IM"), which was supplemented twice and consolidated on June 2, 2010. See id. ¶¶ 170, 173-74. The 2010 IM was distributed to BTA Bank's creditors and was intended to provide information they needed to cast an informed vote on the restructuring plan.

Several elements of the plan are relevant here. First, S-K Fund forgave the BTA Bonds it then held, which had a face value of KZT 645 billion, in exchange for an additional six-plus percent of BTA Bank equity. See id. ¶¶ 79, 142, 214-15. Second, and relatedly, S-K Fund continued to...