Foreign law

• Pages: 58-62

Page 58

Prior to its fi nancial demise, AremisSoft (the Bankrupt) was a software enterprise incorporated in Delaware. Between 1998 and 2001, two of the Bankrupt's directors and officers, Lycourgos Kyprianou and Roys Poyiadjis (collectively, the Directors), allegedly carried out a classic "pumpand-dump" scheme.

According to the complaint, they artifi cially inflated Bankrupt's stock price by misrepresenting that its fi nancial position was strong. Having "pumped" the stock price, they "dumped" the Bankrupt's stock they had bought by selling their shares on the open market to unsuspecting investors.

To cover up their schemes, the Directors allegedly ran these insider-trading transactions through a variety of sham entities and bank accounts. They allegedly did all this with the aid and knowledge of Bordier et Cie and Dominick Company (Defendants), both banks organized under the laws of Switzerland. A few months and some hundreds of millions of dollars later, the market found out about the Bankrupt's real fi nancial status and sent the stock to the basement.

In March 2002, AremisSoft sought relief under Chapter 11 of the Bankruptcy Code in the New Jersey Bankruptcy Court. A federal class-action securities suit, was already pending against Bankrupt. In it a group who had bought Bankrupt's stock (the Buyers) sought rescission of their stock-purchase contracts. To settle the Buyers' suit, the bankruptcy parties agreed that the reorganization plan would assign to the Buyers all causes of action owned by the Bankrupt.

These claims took many forms, from contract and tort claims to, as here, claims for disloyalty against corporate fi duciaries and their aiders and abettors. Bankruptcy is a process of gathering and preserving all of the debtor's assets, so as to distribute them to creditors and interest holders in an orderly fashion. Legal claims owned by the Bankrupt can be important assets of the bankruptcy estate. Thus they are fair game for distribution to the debtor's creditors and equity holders.

The reorganization plan provided for the creation of a state-law trust (the Trust) to take title to, and prosecute, the assigned claims for the Buyers' benefi t. The Buyers also assigned to the Trust any causes of action that they owned individually stemming from the purchase of the Bankrupt's securities.

Joseph LaSala and Fred Ziedman (Plaintiff s) became the Trustees and are bringing this lawsuit in New Jersey federal court. The Bankrupt's estate and the Buyers allegedly assigned all their causes of action to the Trust. Plaintiff s asserted four causes of action against Swiss banks, Bordier et cie and Dominick Company, A.G. (Defendants). As internationally pertinent here, there were two counts of violating Swiss money-laundering laws, one against each Swiss Defendant.

The Plaintiffs have alleged in counts III and IV that the Banks violated Swiss banking regulations by failing properly to investigate and interdict the Directors' alleged money-laundering transactions. The Trust has further alleged that it, as assignee of the Buyers, is entitled under Swiss law to recover damages for the Banks' violations. [See F. R. Civ. Pro. 44.1].

The Defendants moved to dismiss, arguing, inter alia, that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) preempted the Plaintiffs' lawsuit. Congress enacted SLUSA to supplement the Private Securities Litigation Reform Act (PSLRA) of 1995. As pertinent here, the District Page 59 Court dismissed Counts III and IV relating to Swiss law issues. Plaintiff s noted their appeal. The U.S. Court of Appeals for the Third Circuit vacates and remands.

Congress enacted the PSLRA because a majority had decided that securities plaintiff s and their attorneys were bringing abusive securities class actions against corporations that had no legitimate chance of...