The opinion of the court was delivered by: BRODERICK
Plaintiffs Recaman and Lopez, citizens of Columbia, South America, seek substantial compensatory and punitive damages in this action which was commenced on May 15, 1973 on behalf of themselves and all who purchased, for cash or on margin, shares of United States Investment Fund on or before October 7, 1960.
The gravamen of their complaint is that the prospectus and oral statements, pursuant to which the offers and sales were made, were false and misleading and violated Sections 5(a), (b) and (c) and 17(a) and (c) of the Securities Act of 1933 (15 U.S.C. § 77(e)), Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)), and SEC Rule 10b-5 promulgated thereunder. Jurisdiction, which is predicated on the existence of a federal question, is said to exist by virtue of Section 22 of the Securities Act of 1933 (15 U.S.C. § 77v) and Section 27 of the Securities Exchange Act of 1934 (15 U.S.C. § 78aa). The thirty-seven defendants named in the complaint include individuals, domestic and foreign corporations and domestic and foreign banks.
Inasmuch as the plaintiffs brought this matter as a class action and named numerous defendants in their complaint, the Court determined that the procedures outlined in the Manual for Complex Litigation would be followed. Accordingly, in Pre-Trial Order No. 1, dated November 23, 1973, the Court directed all of the parties to file all of their preliminary motions addressed to the complaint at one time, with the parties joining in a single set of papers to the extent that their differing interests would permit. All other proceedings, including the class action determination, were stayed except upon further order of the Court.
In accordance with the Court's Pre-Trial Order, all defendants joined in one set of motion papers which raised the following four grounds for dismissal of the action pursuant to Rule 12(b) of the Federal Rules of Civil Procedure or for summary judgment pursuant to Rule 56: (1) lack of subject matter jurisdiction; (2) the doctrines of res judicata, comity, release, and collateral estoppel; (3) the doctrine of forum non conveniens ; and (4) lack of standing. In addition, each defendant that had grounds for seeking dismissal of the action because of venue, personal jurisdiction or service of process deficiencies did so by separate motion. Several groups of defendants filed separate motions to dismiss the action on the ground that the facts alleged by the plaintiffs in their complaint do not support their claim under the securities acts. Because we hereby grant defendants' motion to dismiss on the ground that this Court lacks subject matter jurisdiction, we will not address the other grounds raised in these motions.
The story of the circumstances underlying this complicated action is difficult to relate because thus far there has been no trial and all the facts have not been determined. Yet the issue of subject matter jurisdiction depends, in part, on the facts alleged and the affidavits filed. At this point we feel that it is helpful to set forth a general statement of the factual background underlying this action.
United States Investment Funds ("USIF"), which originated under a Deed of Trust dated August 26, 1966, was organized under the laws of the Commonwealth of the Bahama Islands and operated under a license granted by its Ministry of Finance. A person desiring to invest in the trust could do so by purchasing a beneficial interest in terms of shares represented by investment program certificates. Under the Trust Deed, sales of such shares were not eligible for ownership by residents of the United States. This prohibition was stated in each prospectus (Plaintiff's Supplemental Exhibits, #3, p. 29) and on every investment program certificate. (Defendants' Appendix, Volume 2, Exhibit F).
Trust Corporation of Bahamas Limited, ("TCB"), a Bahamian corporation whose offices are located in Nassau, was named in the Trust Deed as custodian trustee of the assets of the trust, and has served as custodian trustee, registrar, and transfer agent of USIF from 1966 to the present.
The purpose of USIF, as set forth in the Trust Deed and in the prospectus, was to invest its funds in United States real estate. Gramco Management Limited ("Gramco"), a Bahamian corporation with its offices in Nassau, was named in the Trust Deed to serve as the manager of the trust. The Deed gave it responsibility to organize sales of interests in the trust. Gramco engaged in the sale of USIF shares to investors throughout the world. USIF's Deed of Trust and Investment Program Certificates prohibit sales to United States residents.
When investors like the plaintiffs wished to buy shares on margin in addition to those they purchased for cash, Gramco Finance Company Limited, ("Finance"), a Bahamian corporation with its offices in Nassau, would loan the necessary funds to such investors and would receive from them a promissory note and, as collateral for the loan, a pledge of USIF shares purchased by the investors. From time to time, Finance borrowed money from banks in different parts of the world, a number of whom are named as defendants in this action. To secure the loans made to it by these banks, Finance assigned (rehypothecated) to the banks various notes and pledge agreements of USIF investors held by Finance as collateral for Finance loans to such investors.
On two occasions in 1969 plaintiffs purchased shares of USIF. The first purchase was for cash and the second was a margin transaction. The facts and circumstances surrounding these purchases will be more fully discussed later in this opinion.
Gramco spawned a number of subsidiaries and affiliates, several of which were owned, controlled, and/or directed by several of the individual defendants. These corporations include American Properties Management Limited, Inc., a Florida corporation principally engaged in the acquisition and management of the fund's real estate in the United States; Amprop, Inc., a Florida corporation which assumed the functions of American Properties Management Limited, Inc. in February 1969; and Imperial Insurance Agency, a Florida corporation and wholly owned subsidiary of American Properties Management Limited, Inc., which handled the insurance for the fund's real estate. Additionally, USIF owned approximately 140 United States subsidiary corporations.
A process of cash drain began to beset the trust in the latter part of 1970. There were substantially increased demands for redemption of shares, the cost of which were not offset by new investments. In addition, there were defaults in payments by margin investors who had borrowed from Finance, which in turn prevented Finance from making payments on its obligations to various banks. This triggered action by the banks to realize on the collateral rehypothecated to them by Finance. The banks thus made additional redemption requests as they sought to realize on their collateral. These developments caused the trust to face a liquidity ...