## Facts

- Russian investors (and assignees of hundreds of additional Russian investors) invested millions of dollars through entities controlled by Oleg Batratchenko.
- The investments were marketed as opportunities in stocks, commodities, and U.S. real-estate-related ventures, and investors received statements reflecting unusually high returns.
- Batratchenko allegedly gave assurances that certain real estate investments were safe and that significant market declines would be required before losses occurred.
- When investors sought redemptions, defendants allegedly refused to return funds, citing regulatory complications and illiquid holdings.
- Plaintiffs alleged the returns were fictitious and that investor funds were misappropriated or lost.
- The dispute was predominantly foreign: plaintiffs were Russian, Batratchenko resided in Russia, and solicitation and contracting largely occurred outside the United States.

## Issues

1. Whether Commodity Exchange Act antifraud claims are barred where plaintiffs failed to plead domestic transactions or sufficient domestic conduct, given Morrison’s territorial approach.
2. Whether Exchange Act § 10(b) and Rule 10b-5 claims fail absent allegations of a “domestic transaction” in securities.
3. Whether the court should retain supplemental jurisdiction over state-law claims after dismissing all federal claims.

## Decision

- The court granted defendants’ motion to dismiss under Rules 12(b)(1) and 12(b)(6).
- The Commodity Exchange Act claims were dismissed because the complaint did not plead facts showing relevant transactions were domestic.
- The Exchange Act § 10(b) and Rule 10b-5 claims were dismissed for failure to allege a qualifying domestic securities transaction.
- The court declined supplemental jurisdiction over the state-law claims and dismissed them without prejudice.

## Legal Principles

- Federal antifraud statutes analyzed under Morrison generally require allegations of domestic transactions, not merely domestic conduct, domestic assets, or a U.S. citizen’s involvement.
- For claims tied to investment contracts and related instruments, plaintiffs must plead facts supporting that purchase-and-sale obligations were incurred in the United States or that the agreements were approved/accepted in the United States (or similar facts showing domestic formation/execution).
- Allegations that funds invested in U.S. assets (including U.S. real estate) are insufficient without factual allegations locating the relevant transactions in the United States.
- When federal claims are dismissed at an early pleading stage, courts commonly dismiss associated state-law claims without prejudice by declining supplemental jurisdiction under 28 U.S.C. § 1367.

## Conclusion

The court dismissed CEA and Exchange Act claims because plaintiffs did not plausibly allege domestic transactions under Morrison-style territorial limits, and it dismissed the remaining state-law claims without prejudice after declining supplemental jurisdiction.


Starshinova v. Batratchenko, 931 F. Supp. 2d 478 (S.D.N.Y. 2013)