Second Circuit Agrees with Morvillo Abramowitz in Appeal Setting the Standards for Application of the Securities Exchange Act to Off-Market Transactions

March 1, 2012

On March 1, 2012, the United States Court of Appeals for the Second Circuit agreed with Morvillo Abramowitz in a precedent setting case applying the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., which limited the extraterritorial reach of the Securities Exchange Act of 1934. In Absolute Activist Value Master Fund Ltd., v. Ficeto,--- F.3d ----, 2012 WL 661771 (2d Cir. Mar. 1, 2012), the Second Circuit affirmed the dismissal of all claims brought by nine Cayman Islands hedge funds against former officers and directors of investment manger Absolute Capital Management Holdings Ltd., and its broker-dealer, for losses from an alleged scheme involving stocks in small-cap United States companies. Morvillo Abramowitz Partner Robert J. Anello was lead counsel before the district court and argued the Second Circuit appeal on behalf of Sean Ewing, the former Chairman and Chief Executive Officer at Absolute Capital Management. 

In its decision, the Second Circuit explained that in order to allege sufficiently the existence of a “domestic transaction” in an off-market securities transaction after Morrison, a plaintiff must allege facts suggesting that either “irrevocable liability was incurred or title transferred within the United States.” After reviewing the sixty-one page complaint, the Second Circuit found the allegations in this regard insufficient, but remanded to the district court to provide the plaintiffs an opportunity to re-plead. The Second Circuit directed the district court on remand also to consider alternate arguments for dismissing the case, including failure to state a claim, expiration of the statute of limitations, and lack of personal jurisdiction. Morvillo Abramowitz lawyers Judith L. Mogul and Eli J. Mark also represent Mr. Ewing in this matter.