According to the decision, the timing of the transaction did not constitute evidence of impropriety or insider information.
A director at Deutsche Bank Securities Inc. (DBSI) had contacted the chief investment officer at MBOI to ask if MBOI was interested in swapping its Pennzoil-Quaker State Company 2009 bonds for DBSI’s Toys R Us bonds, or selling the Pennzoil bonds to DBSI for a stated price, the court document said. The chief investment officer said MBOI was not interested, but later inquired whether the price originally quoted by Williams applied only to the swap, or if it would be the same for a cash purchase. He indicated that MBOI had $15 million in Pennzoil bonds it might be interested in selling.
DBSI initiated the trade. According to the court document, that evening Shell Oil publicly announced that it had agreed to acquire Pennzoil-Quaker State Company, an announcement that would potentially increase the value of the bonds.
The following day, MBOI advised DBSI that it was breaking the trade because it believed the buyer had inside information and the trade was “unethical & probably illegal.” As a result of MBOI’s cancellation, DBSI purchased the Pennzoil bonds elsewhere, paying an additional $1.6 million.
DBSI then commenced action in Supreme Court, New York County, alleging breach of contract. The Supreme Court granted MBOI’s cross-motion to dismiss the complaint for lack of personal jurisdiction and denied DBSI’s motion for partial summary judgment. The Appellate Division, however, unanimously reversed, and the State Court of Appeals affirmed its decision.
The opinion is here .
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