United States. Plaintiffs' initial contact with USIF occurred in March, 1969, when salesmen from Gramco visited plaintiffs in Bogota, Colombia. The Gramco salesmen were United States residents. They explained the nature of the sales and gave the plaintiffs a prospectus and an application for purchase which they filled out. To complete the purchase, which was made in the names of both plaintiffs, who are sisters, plaintiff Lopez authorized the Gramco salesmen to make a withdrawal of her funds from her account in a bank in Miami, Florida. (Affidavit of Lopez, para. s 3, 4 and 5, Defendants' Appendix, Vol. 2, #10.)
Gramco salesmen offered additional shares of USIF to plaintiffs in Bogota, Colombia in October of 1969. Plaintiffs were encouraged to make a second investment so that they could participate in the margin sales program, which was explained to them at the Bogota meeting. The funds to be used in making the second purchase were also in Miami. Plaintiff Lopez then traveled to Miami with the Gramco salesmen and made the arrangements for transferring the funds. (Lopez Affidavit, para. s 6 and 7).
Examining these transactions, we find that they fail to establish significant offense related conduct in the United States. Here we have residents and citizens of Bogota, Colombia purchasing shares in a Bahamian trust in Bogota from a United States resident who was acting as a salesman of shares in the Bahamian trust. At all times material the custodian trustee of the Bahamian trust, TCB, was a Bahamian corporation maintaining its offices in Nassau. The managing trustee, Gramco, through whom plaintiffs purchased their shares, was also a Bahamian corporation with its offices in Nassau. Furthermore, when plaintiffs desired to purchase additional USIF shares they did so through another Bahamian corporation, Finance, which was also headquartered in the Bahamas. The plaintiffs, residents of Bogota, Colombia did not purchase their shares from a United States broker or pursuant to communications from the United States. Furthermore, there is no contention that USIF shares were ever traded on any United States securities exchange or over-the-counter market. The fact that the Gramco salesmen who allegedly made misrepresentations and showed a prospectus containing alleged misrepresentations were United States residents and the fact that plaintiff Lopez traveled to the United States to obtain her money to pay for her purchase does not establish significant offense related conduct in the United States.
Plaintiffs appear to place great reliance on SEC v. Gulf Intercontinental Financial Corp., 223 F. Supp. 987 (S.D. Fla. 1963), referring to it as a case "directly on point." We do not agree. Gulf was decided in 1963 prior to the development of the tests enunciated by Schoenbaum and Leasco. The court in Gulf found that the investments offered by the defendants were "extended to all parties [including United States investors] who might be interested." 223 F. Supp. at 994. In the case at bar the Deed of Trust and Investment Program Certificates expressly prevented residents of the United States from purchasing shares of the trust. But of equal importance is the fact that the district court in Gulf found the entire transaction to be a promotional scheme whereby the "true issuers" of the notes of Gulf Intercontinental, the Canadian company, were the individual and corporate Florida defendants and that Gulf Intercontinental was nothing more than a conduit for the securities issued by the Florida corporation.
Plaintiffs have not established such a basis for jurisdiction in the instant case.
The plaintiffs also claim that because USIF owned substantial real estate in the United States, that some directors of Gramco and other subsidiaries were United States citizens and residents, and that some American banks were used to finance margin sales, USIF is, in substance, a United States corporation. Once this premise is accepted, argue plaintiffs, any activity in the United States undertaken by any of the banks, any USIF subsidiary corporation, or any director is sufficient to establish jurisdiction.
This proposition cannot be sustained. In Finch v. Marathon Securities Corporation, 316 F. Supp. 1345 (S.D. N.Y. 1970), a 10b-5 action, Judge Tenney granted defendants' motion to dismiss a complaint brought by a British plaintiff who alleged that he was fraudulently induced by foreign defendants to purchase shares of a British corporation owned by a Bermudian investment fund. All of the officers and six of the eight directors of the Bermudian investment fund were Americans; both the Bermudian company and the successor Delaware corporation were controlled by an Illinois corporation, and were registered with the SEC as investment companies and maintained offices in New York. The plaintiff purchaser and the representatives of defendant investment fund met in London to plan the transaction, then traveled together to New York to execute the purchase agreement, pursuant to which the transfer of the securities took place (the agreement was subsequently revised and reexecuted in London). Payment for the securities, which were kept in New York, was required to be made at defendants' principal office within the United States. The plaintiff in Finch unsuccessfully argued that these contacts with the United States constituted significant offense related conduct in the United States. Judge Tenney disagreed, holding that the significant offense related conduct occurred outside of the United States; that the collateral New York conduct relating to the sale of the securities and the other insignificant United States contacts did not transform the purchase into a United States transaction; and that, in any event, plaintiff had not met the first test of showing impact on a domestic securities market. The Court held:
". . . [When], as here: (1) the substance of the alleged fraudulent conduct occurred outside of the United States; (2) the parties are predominantly foreign; (3) the subject shares are securities in a foreign corporation neither registered nor traded on a national securities exchange; and (4) there is no showing of any domestic injury, it would appear that the district court is without subject matter jurisdiction, despite the existence of less meaningful American-based facts and events." 316 F. Supp. at 1349. (Emphasis added).
Similarly, in SEC v. Kasser, 391 F. Supp. 1167 (D. N.J. 1975), reaff'd, C.A. No. 74-90, filed Nov. 17, 1975 (D. N.J.), the court granted defendants' motion to dismiss for lack of subject matter jurisdiction. The complaint alleged that the defendant Kasser, a United States citizen, and other United States citizens, fraudulently induced the Manitoba Development Fund, an organization created by the Canadian government of Manitoba to oversee the development and financing of a forestry complex in Manitoba, to enter into an investment contract with defendant Churchill Forest Industries (Manitoba) Ltd., a Canadian corporation allegedly controlled by Kasser. The complaint alleged a number of other fraudulent acts allegedly undertaken by the individual and corporate defendants, the latter of which were primarily United States corporations, in connection with the execution and implementation of this investment contract. Despite the fact that a number of activities took place in the United States, Chief Judge Whipple held that the transaction was essentially a foreign one that would not support subject matter jurisdiction in the United States.
The facts and events present in the case at bar are no more significant that those found insufficient to support the court's jurisdiction in Finch and Kasser. In both cases, the courts rejected the plaintiffs' theories that the citizenship of the individual defendants or the corporate defendants' officers and other collateral contacts with the United States could serve to impute United States control over the transactions. Likewise, the United States citizenship of some of the officers and directors of Gramco and the fact that some subsidiaries were United States corporations does not permit this Court to apply United States securities laws to the alleged illegal transactions in this case.
For all of the above reasons, will grant the motion of defendants to dismiss this action on the ground that this Court lacks subject matter jurisdiction.
AND NOW, to wit, this 11th day of December 1975, 1975, upon consideration of defendants' motion to dismiss the action for lack of subject matter jurisdiction, it is hereby ORDERED that defendants' Motion is GRANTED, and this action is dismissed.
RAYMOND J. BRODERICK, J.