Case of the Day: SEC v. Dubovoy

The case of the day is Securities & Exchange Commission v. Dubovoy (D.N.J. 2016). The SEC sued Nikolai Slepenkov and Maxim Zakharchenko, both Russian nationals, alleging violations of § 17(a) of the Securities Act of 1933 and §§ 10(b), 20(b), and 20(e) of the Securities Exchange Act of 1934. The claim was that Ukrainian hackers hacked into wire service computers and stole not-yet-public press releases, which they passed to traders such as Slepenkov and Zakharchenko, who then traded illegally on the information. The traders, including Slepenkov and Zakharchenko, allegedly made $100 million in profit over the life of the scheme. The SEC sought leave to serve process on the two by email.

There was no indication that either defendant’s address was unknown, so the Hague Service Convention applies. The SEC’s submission was that it should be permitted to make service by email because “both Defendants reside in Russia, a country that refuses to serve process in accordance with the Hague Convention.” The judge agreed and granted the motion.

I’ve previously given my reasons for thinking that this approach is wrong. Although Russia has breached the Convention in a material way, the United States has not given notice of a claimed breach or purported to suspend the operation of the Convention. (I assumed in the earlier post that the Vienna Convention restates the customary international law on the effect of a material breach of a multilateral convention).

Many private plaintiffs have made the argument the SEC made here. This, though, is the first time I recall seeing the US government make the argument. Does the State Department approve of the SEC’s argument? Is the US government’s position that the Convention is not in effect between the United States and Russia?

To be clear, I would be pleased if the answer to those two questions is yes; but I’m not aware of any publicly available statement of government policy on this question.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. Folkman also serves as an arbitrator and is a member of the Commercial and Consumer Panels of the American Arbitration Association. He is the author of International Judicial Assistance (MCLE 2d ed. 2016), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's treatise on International Aspects of US Litigation (J. Berger, ed. 2017), and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012 and 2014 - 2016.

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