Commercial Division Reiterates That Alleged Manipulation of New York Financial Markets Subjects a Foreign Company and Its ‘Primary Actors’ to Specific Jurisdiction
1.27.2025
It is no secret that New York is one of the world’s top financial centers, with a large contingent of domestic and foreign entities and individuals that touch within New York’s borders either directly or indirectly. Some of these entities have no physical connection to New York, save for issuing distribution shares on New York’s stock exchanges, attending the initial public offering and transacting with New York banks. These entities are otherwise foreign entities with foreign places of business and with officers and directors who are citizens of foreign states and countries. What redress do shareholders have then in New York when foreign officers or directors of foreign entities are alleged to have committed fiduciary breaches? More particularly, where those officers and directors have transacted business using New York markets for their own benefit, is New York a proper jurisdiction for a shareholder derivative suit?
In Matter of Renren, Inc.,[i] the First Department answered the question affirmatively, holding under the circumstances that the foreign entity and individual defendants had used and manipulated New York markets in a manner that subjects them to New York’s jurisdiction under its long-arm-jurisdiction statute. The question was again addressed in the Commercial Division’s recent decision in Oasis Investments II Master Fund v. Mo.[ii] There, Justice Andrew Borrok reiterated that claims brought on behalf of a derivative defendant for alleged director and shareholder fiduciary breaches that are alleged to stem from manipulating New York’s financial markets are subject to specific jurisdiction under New York’s long-arm statute.[iii]
The Relevant Oasis Parties
To understand the gravity of the Oasis decision, it is necessary to understand the parties and their connection, or lack thereof, to New York. The plaintiff, Oasis Investments II Master Fund Ltd., is a company incorporated under the laws of the Cayman Islands that carries out investment management activities through two primary advisors based in Hong Kong and Austin, Texas.[iv] The plaintiff, Lorelei NCC Inc., is a company incorporated under the laws of the State of New York, which carries out investment activities from New York.[v] Both Oasis and Lorelei held shares or beneficial interests in nominal defendant, Fang Holdings Limited.
Fang Holdings is at the epicenter of the Oasis action and, as noted below, is alleged to have been manipulated in a series of transactions for the benefit of defendants, Vincent Tianquan Mo and Richard Jiangong Dai, for self-gain and in breach of their fiduciary duties. Fang is incorporated in the Cayman Islands and alleges to have its principal place of business in China.[vi] Mo and Dai are each citizens of the People’s Republic of China.[vii] Mo is alleged to be Fang’s controlling shareholder either directly or through entities he owns and/or controls, and Dai is alleged to be, at various times, an officer, director and chairman of Fang.[viii]
China Index Holdings Limited is alleged to have been a wholly owned subsidiary of Fang. It is alleged that China Holdings was spun off and reacquired by Fang in the below noted series of transactions that benefited Mo and Dai individually, and not Fang and its shareholders.
Oasis Brings Suit in New York Against, in Part, Fang, Mo and Dai
Oasis initiated the Oasis action on May 30, 2023, derivatively on behalf of Fang against, in part, Mo and Dai alleging that they engaged in a fraudulent scheme to enrich themselves, in breach of their fiduciary duty, by manipulating the New York financial markets at Fang’s expense.
The genesis of the alleged fiduciary breaches is an alleged multi-step transactional manipulation, conducted by Mo and Dai, and summed up as follows:
- Step 1: In 2019, Mo and Dai returned to New York to spin off the American distribution shares of Fang’s subsidiary, China Index Holdings, on the Nasdaq Stock Market. As a result of the spin-off, Mo and Dai received the shares on a pro rata basis.
- Step 2: Mo and Dai caused Fang to purchase the shares from Mo’s and Dai’s affiliates at a higher market value. Mo and Dai also caused Fang to buy the China Index Holdings Limited shares in the New York market.
- Step 3: Fang (at the direction of Mo and Dai) failed to provide mandatory SEC financial reporting. It is alleged that this failure was motivated by Mo and Dai wanting Fang to be delisted from the New York Stock Exchange. It is alleged that Mo and Dai used a prior action in the Cayman Islands, which sought to wind up Fang as the basis to “go dark,” but that this prior matter was resolved in mid-2021, while Fang was not delisted until 2022.
- Step 4 and Step 5: Mo and Dai used the artificially depressed market to buy back China Holdings’ American distribution shares. At the direction of Mo and Dai, Fang offered a private transaction to buy out China Holdings’ minority investors.
Fang, Mo and Dai Challenge New York’s Jurisdiction
Between Nov. 30, 2023 and Dec. 1, 2023, Fang, Mo and Dai each brought motions to dismiss the Oasis action under CPLR 3211(a)(8), asserting that New York does not have personal jurisdiction because Oasis cannot show that Fang transacted business in New York, and that there is a “substantial relationship” between the transacted business and the claim asserted.[ix] Fang, Mo and Dai also assert that New York’s exercise of personal jurisdiction over it would not comport with due process because it lacks the minimum contacts with New York.[x]
As synthesized by the court, Fang contended that there is no articulable nexus between the claims asserted by Oasis and Fang’s transaction of business in New York, namely its initial public offering on the New York Stock Exchange and China Holdings’ listing on Nasdaq, because: (1) any connection between those actions and Oasis’ claims are too attenuated; (2) that the buyback of China Holdings’ shares was done in accordance with foreign agreements; and (3) the take-private action was a Cayman Islands action with insignificant New York ties.[xi] Fang also argued that its New York communications and payments to JP Morgan Chase in New York were ministerial, legal and logistical requirements.[xii]
Mo and Dai each argued that New York does not have personal jurisdiction because they are citizens of China and do not have sufficient minimum contacts with New York. Specifically, Mo and Dai argue that Oasis has not sufficiently alleged that their status as shareholders and as directors of Fang.
The Court Finds It Has Personal Jurisdiction Over Fang, Mo and Dai
No General Jurisdiction Over Fang, Mo or Dai
Before addressing New York’s long-arm statute, the court began its analysis under CPLR 301, which permits the court to exercise general jurisdiction over a defendant whose ties to New York “‘are “so continuous and systematic” as to render them essentially at home in the forum state.’”[xiii] For Fang, barring a showing of exceptional circumstances, its place of general jurisdiction is its “‘place of incorporation and [its] principal place of business.’”[xiv] The court held that Fang is a Cayman Islands company that does not have a principal place of business in New York and that there were no exceptional circumstances plead by Oasis to change that calculus. The court therefore held that it does not have general jurisdiction over Fang. Similarly, the court noted that for Mo and Dai the “‘paradigm forum for the exercise of personal jurisdiction is the individual’s domicile.’”[xv] Because Mo and Dai are Chinese citizens and do not maintain residences in New York, the court declined to exercise general jurisdiction over them.
Specific Jurisdiction Over Fang Under CPLR 302(a)
After thorough reasoning, however, the court did find that it had specific jurisdiction over Fang under New York’s long-arm statute, CPLR 302(a).
The court began its analysis by reiterating the familiar standard that “[a] New York court may exercise personal jurisdiction over a non-domiciliary defendant where (i) the court has long-arm jurisdiction over the defendant pursuant to CPLR § 302 and (ii) the exercise of such jurisdiction comports with the strictures of due process.”[xvi]
The court reasoned that New York’s long-arm statute, “[t]his is a ‘single act statute,’ meaning that ‘proof of one transaction in New York is sufficient to invoke jurisdiction.’”[xvii]
With respect to the due process requirement, the court reiterated that to align with due process, “a defendant must have sufficient minimum contacts with New York such that the defendant should reasonably expect to be hauled into court here, and that requiring the non-domiciliary to defend the action in New York comports with ‘traditional notions of fair play and substantial justice.’”[xviii]
As for Fang’s actions in the Oasis action, the court held that jurisdiction over Fang in New York is proper because the transactions at issue involved significant contacts in New York such that “there is an articulable nexus or substantial relationship between the transactions and the claim asserted.” The court’s rationale was simple – the transaction was not merely a spin-off as Mo and Dai suggested, but rather Mo and Dai used the series of transactions summed up above to “use[] and manipulated New York markets for their own benefit.”[xix] It was not lost on the court that Fang was listed on the New York Stock Exchange, had issued and distributed shares in the United States as part of its IPO and had engaged in depository banking transactions with JP Morgan. In so deciding, the court analogized the facts of the Oasis action to Matter of Renren, Inc.,[xx] where the individual defendants similarly were alleged to have manipulated the New York markets by using a multi-step transaction designed to strip Renren of its most valuable assets for their individual benefit.[xxi]
Specific Jurisdiction Over Mo and Dai Under CPLR 302(a)(1)
Similarly, the court also held that it had specific jurisdiction over Mo and Dai under New York’s long-arm statute.
The court began its analysis by identifying the “critical issue” to the exercise of jurisdiction over Mo and Dai as outlined by Renren – whether Mo and Dai were “primary actors” with respect to the transactions and Fang’s business in New York. The court opined that where Fang was determined to engage in purposeful activities in New York concerning a transaction “with the knowledge and consent of the defendant, the court has personal jurisdiction over a defendant by virtue of the corporation’s activities where the defendant benefited from the transaction and exercised some degree of control over the corporation in relation to the transaction.”[xxii] To meet this standard, Oasis was not required to establish a formal agency relationship between Mo and Dai and Fang. Oasis need “only convince the Court that [the] Company engaged in purposeful activities in this State in relation to [the] transaction for the benefit of and with the knowledge and consent of the . . . defendants and that they exercised some control over [the] Company in the matter.”[xxiii] With respect to control, the court held that the “‘the plaintiff must allege in sufficient detail that the defendant was a primary actor in the subject transaction.”[xxiv]
“To satisfy the element of control,” the court noted that Oasis “must allege in sufficient detail that the defendant was a primary actor in the subject transaction.”[xxv]
The court held that Mo and Dai were primary actors because the record shows that Mo and Dai orchestrated and consummated the transaction for their own benefit. The court made particular note of Mo and Dai’s connection as primary actors to the transactions by enumerating that (1) Mo and Dai came to New York to ring the bell on the day of Fang’s IPO, (2) “Mo and Dai personally signed allegedly misleading Fang securities filings,” and (3) “Mo owned between 71% to 85% of the voting power in Fang during the relevant periods.” With respect to the transactions themselves, the court was clear that these were the same types of New York market manipulation that was held by Renren to subject the individuals to satisfy both New York’s long-arm statute and the notions of due process. To the latter, the court also held that New York was a convenient forum for the litigation.
The Takeaway
The message for foreign entities and individuals who use New York’s financial markets is clear: if you are alleged to have manipulated those markets in a manner that raises civil claims, then you will likely be subject to New York’s jurisdiction.
Jason A. Little, counsel at Farrell Fritz’s Albany office, is a business litigator and corporate counselor advising businesses, including institutional automotive and equipment finance companies, and entrepreneurs on structuring, expanding, formatting, selling and dissolving business entities and partnerships. This article appears in a current issue of NYLitigator, a publication of the Commerical and Federal Litigation Section. For more information visit NYSBA.ORG/COMFED
Endnotes:
[i] 192 A.D.3d 539 (1st Dep’t 2021).
[ii] 82 Misc.3d 1242(A) (Sup Ct., N.Y. Co. May 2, 2024).
[iii] See N.Y. CPLR 302.
[iv] See Oasis Investments II Master Fund Ltd. v. Mo, Index No. 652607/2023 at Doc. No. 1, par. 18.
[v] Id., Doc. No. 1, par. 19.
[vi] Id., Doc. No. 1, par. 26.
[vii] Id., Doc. No. 1, par. 20.
[viii] Id., Doc. No. 1, pars. 20, 24.
[ix] Id., Doc. No. 71.
[x] See Oasis Investments II Master Fund Ltd. v. Mo, 82 Misc.3d 1242(A), *5.
[xi] Id.
[xii] Id.
[xiii] Id. at *6 (quoting Goodyear Dunlop Tires Operations, S.A. v Brown, 564 US 915, 919 (2011) (quoting International Shoe Co. v Washington, 326 U.S. 310, 317 (1945)).
[xiv] Id. (quoting Daimler AG v Bauman, 571 US 117, 137 (2014)).
[xv] Id. (quoting Goodyear Dunlop Tires Operations, S.A. v Brown, 564 U.S. at 924).
[xvi] Id.
[xvii] Id.
[xviii] Id.
[xix] Id.
[xx] Id. (citing Matter of Renren, Inc., 192 A.D.3d 539).
[xxi] Id.
[xxii] Id. (citing Retail Software Servs., Inc. v Lashlee, 854 F2d 18, 21-22 (2d Cir 1988).
[xxiii] Id.
[xxiv] Id. (quoting Coast to Coast Energy, Inc. v Gasarch, 149 A.D.3d 485, 487 (1st Dep’t 2007)).
[xxv] Id.
