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ATSI Communs., Inc. v. Shaar Fund, Ltd.

United States Court of Appeals for the Second Circuit

November 29, 2006, Argued; July 11, 2007, Decided

Docket No. 05-5132-cv, Docket No. 05-2593-cv

Opinion

 [*93]  JOHN M. WALKER, JR., Circuit Judge:

These appeals arise from judgments of the United States District Court for the Southern District of New York (Lewis A. Kaplan, Judge), dismissing plaintiff ATSI Communications, Inc.'s ("ATSI") complaints under Fed. R. Civ. P. 12(b)(6) in two separate actions arising from the same events. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 357 F. Supp. 2d 712 (S.D.N.Y. 2005). ATSI alleges that the defendants made misrepresentations in connection with securities transactions and engaged in market manipulation in violation of § 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5,  [**3] or were liable as control persons under § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). ATSI claims that the defendants fraudulently induced it to sell to them its convertible preferred stock. The defendants then aggressively short sold ATSI's common stock and converted the preferred stock to cover their short positions. The alleged consequence was a "death spiral" in the price of ATSI's stock and enormous profit for the defendants.

We affirm the judgments of the district court.

BACKGROUND

The following facts are taken from ATSI's complaints and supporting documents, which we must assume to be true in reviewing a Fed. R. Civ. P. 12(b)(6) dismissal. See Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000).

A. ATSI and Its Efforts to Raise Money

ATSI was founded in December 1993 and hoped to become a leading provider of retail communications services in Mexico in the wake of the deregulation and privatization in Latin America's telecommunications markets. It never turned a profit. By 1999, ATSI needed an infusion of capital to expand its U.S. customer base and  [*94]  further develop its telephone network in Mexico.

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493 F.3d 87 *; 2007 U.S. App. LEXIS 16382 **; Fed. Sec. L. Rep. (CCH) P94,363

ATSI COMMUNICATIONS, INC., a Delaware Corporation, Plaintiff-Appellant, -v.- THE SHAAR FUND, LTD., SHAAR ADVISORY SERVICES, N.V., RGC INTERNATIONAL INVESTORS, LDC, ROSE GLEN CAPITAL MANAGEMENT, L.P., CORPORATE CAPITAL MANAGEMENT, INTERCARIBBEAN SERVICES LTD., CITCO FUND SVCS., LUC HOLLMAN, SAM LEVINSON, HUGO VAN NEUTEGEM, DECLAN QUILLIGAN, WAYNE BLOCH, GARY KAMINSKY, STEVE KATZNELSON, TRIMARK SECURITIES, INC., LEVINSON CAPITAL MANAGEMENT, and W.J. LANGEVELD, Defendants-Appellees, MARSHALL CAPITAL SERVICES, LLC., JESUP & LAMONT STRUCTURED FINANCE GROUP, MG SECURITY GROUP, INC., CROWN CAPITAL CORPORATION, JOHN DOES 1-50, KENNETH E. GARDINER, NATHAN LIHON, and SEI INVESTMENT CO., Defendants. ATSI COMMUNICATIONS, INC., a Nevada Corporation, Plaintiff-Appellant, -v.- URI WOLFSON, SAM LEVINSON, Defendant-Appellee, Defendant.

Subsequent History: Sanctions allowed by, in part ATSI Communs., Inc. v. Shaar Fund, Ltd., 2008 U.S. Dist. LEXIS 30624 (S.D.N.Y., Mar. 27, 2008)

Prior History:  [**1] Appeals from judgments of the United States District Court for the Southern District of New York (Lewis A. Kaplan, Judge), dismissing plaintiff ATSI Communications, Inc.'s complaints alleging, inter alia, securities fraud in violation of § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 357 F. Supp. 2d 712 (S.D.N.Y. 2005).

ATSI Communs., Inc. v. Shaar Fund, Ltd., 357 F. Supp. 2d 712, 2005 U.S. Dist. LEXIS 2833 (S.D.N.Y., 2005)

Disposition: AFFIRMED.

CORE TERMS

manipulation, allegations, converted, stock, preferred stock, common stock, investors, shares, misrepresentations, trading, district court, stock price, promise, registration, selling, scienter, sales, per share, conversion, fraudulent, prices, causation, defendants', documents, spiral, volumes, representations, particularity, omission, fails

Civil Procedure, Appeals, Standards of Review, De Novo Review, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Pleadings, Heightened Pleading Requirements, Fraud Claims, Securities Law, Civil Liability Considerations, General Overview, Securities Litigation Reform & Standards, Elements of Proof, Scienter, Postoffering & Secondary Distributions, Securities Exchange Act of 1934 Actions, Heightened Pleading Requirements, Implied Private Rights of Action, Deceptive & Manipulative Devices, Materiality, Reliance, Justifiable & Reasonable Reliance, Contracts Law, Breach, Causation, Statute of Limitations, Implied Private Rights of Action, Secondary Liability, Controlling Persons, Elements of Proof, Abuse of Discretion, Amendment of Pleadings, Pleading & Practice