Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—S.D.N.Y.: Fraud claims were mainly based on conduct tied to Bermuda, (Jul 18, 2025)

By Rodney F. Tonkovic, J.D.

While the transaction was domestic, the claims were so predominantly foreign as to be impermissibly extraterritorial.

A district court dismissed a plaintiff's fraud claims because the Exchange Act does not apply extraterritorially. The suit involved two insurance companies based in Bermuda. The plaintiff sued for fraud under the Exchange Act based on alleged misrepresentations in a stock purchase agreement, but the court found that the claims arose out of conduct that so predominantly involved Bermudan laws and regulations as to be impermissibly extraterritorial. The claims were accordingly dismissed with prejudice (Fleming Intermediate Holdings LLC v. James River Group Holdings, Ltd., No. 1:24-cv-05335 (S.D. N.Y. July 17, 2025)).

Stock purchase agreement. Plaintiff Fleming Intermediate Holdings, LLC is a Cayman Islands insurance company based in Bermuda. In November 2023, Fleming agreed to purchase the equity of JRG Reinsurance Company Ltd., a Bermudan insurance company, from its parent, defendant James River Group Holdings, Ltd.

The parties agreed to close the stock purchase agreement ("SPA") upon the satisfaction of various conditions. According to Fleming, however, JRG rushed to close the transaction by the end of 2023 in the hopes that Fleming would not discover JRG's "flagrant violations" of myriad covenants in the SPA. Fleming also claimed JRG made misrepresentations in the SPA itself that would result in Fleming paying a vastly inflated price.

When it came time to close, the defendants provided Fleming with incomplete and inaccurate estimated closing statements that caused Fleming to balk and raise questions. While Fleming agreed to close provided the breaches were cured, the defendants demanded that the closing proceed and eventually filed suit in a New York state court over Fleming's alleged breach of the SPA. The state court case led to a preliminary injunction ordering Fleming to close on the transaction. Fleming complied and closed on its acquisition of JRG in April 2024.

Extraterritoriality. Fleming then brought fraud claims, asserting material misrepresentations made in connection with the SPA. The court concluded that Fleming's Section 10(b) fraud was so predominantly foreign as to be extraterritorial.

The court first found that the claim was domestic because irrevocable liability occurred in the United States. At the pleading stage, there was at least a plausible inference that irrevocable liability occurred in the U.S. because Fleming alleged that James River Group Holdings was headquartered in North Carolina and the SPA was negotiated and entered into in New Jersey and North Carolina. The court noted that a domestic transaction is a necessary predicate for invoking Section 10(b), but is not sufficient by itself.

The conduct involved in the fraud claim, however, was "so predominantly foreign as to be impermissibly extraterritorial." The underlying transaction involved foreign parties, a private agreement, and shares of a privately held Bermudan company not traded on any exchange: these facts alone weighed in favor of finding that the claim was predominantly foreign, the court said. More fundamentally, the court explained, the claim was premised largely upon alleged misrepresentations to a Bermudan regulator and purported violations of Bermudan laws and regulations, and other material details of the transaction were connected to Bermuda. This required dismissal of the fraud claim.

The fraud claims were dismissed with prejudice. The court declined to exercise supplemental jurisdiction over Fleming's state law claims and dismissed them without prejudice.

The case is No. 1:24-cv-05335.

Judge: Rochon, J.

Attorneys: Akiva Shapiro (Gibson, Dunn & Crutcher, LLP) for Fleming Intermediate Holdings LLC. Michael Barry Carlinsky (Quinn Emanuel Urquhart & Sullivan LLP) for James River Group Holdings, Ltd.

Companies: Fleming Intermediate Holdings LLC; James River Group Holdings, Ltd.

LitigationEnforcement: FraudManipulation NewYorkNews