Absolute Activist Value Master Fund Limited v. Ficeto

2012 U.S. App. LEXIS 4258 (2d Cir. 2012)

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Nature of the Case

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Facts

Absolute Capital Management Holdings Limited (ACM) was the investment manager for Absolute (Ps), who were nine Cayman Island hedge funds. Homm (D) was the Chief Investment Officer of ACM. Ewing (D) and Angersbach (D) were the Chairman/Chief Executive Officer and Head of Investor Relations and Marketing, respectively, of ACM. Homm had powers of attorney to invest on Ps’ behalf. Colin (D) and Craig Heatherington (D) were ACM employees who were principals of defendant CIC Global Capital Ltd. Ficeto (D), a resident of California and registered securities agent in California, Florida, Illinois, Massachusetts, New Jersey, New York, Texas, and Washington, was the President, Director, and along with Homm (D), a co-owner of defendant-appellee Hunter World Markets, Inc. the SEC-registered broker-dealer incorporated and based in California with offices in Beverly Hills. Ps alleged that Ds engaged in a pump and dump scheme that cost Ps $195 million. Ds caused Ps to buy billions of shares of penny-stock companies located within the United States. But in fact, ACM already held substantial positions in the thinly capitalized stocks. When Ps bought the stocks, Ds inflated the prices. Ds used private investment in public equity (PIPE) transactions to sell to Ps. After causing Ps to purchase the Stocks directly from the U.S. issuers, Ds then artificially inflated the prices of those stocks by trading and re-trading the U.S. Penny Stocks, often between and among Ps, each time trading the stock at a higher price to create the illusion of trading volume. Ps asserted fraud claims under the federal securities laws -- § 10(b) and Rule 10b-5. On June 23, 2010, the district court heard oral argument on the motions to dismiss. On June 24, 2010, the day after oral argument, the Supreme Court issued its decision in Morrison. The district court dismissed the complaint for lack of subject matter jurisdiction over the case pursuant to Morrison. Ps appealed.