United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 05-3734
                                   ___________

Donald S. Sofonia,                       *
                                         *
             Appellant,                  *
                                         *
      v.                                 * Appeal from the United States
                                         * District Court for the
Principal Life Insurance Company;        * Southern District of Iowa.
Principal Financial Group, Inc.;         *
Principal Financial Services, Inc.,      *
                                         *
             Appellees.                  *
                                    ___________

                             Submitted: April 20, 2006
                                Filed: October 20, 2006
                                 ___________

Before LOKEN, Chief Judge, BOWMAN and BYE, Circuit Judges.
                             ___________

BOWMAN, Circuit Judge.

      Donald Sofonia appeals an order of the District Court1 dismissing his state-law
claims for fraud, breach of fiduciary duty, and unjust enrichment against Principal
Life Insurance Company, Principal Financial Group, Inc., and Principal Financial
Services, Inc. (collectively, Appellees) in connection with the demutualization of
Principal Life Insurance Company. The District Court denied Sofonia's motion to


      1
       The Honorable Robert W. Pratt, United States District Judge for the Southern
District of Iowa.
remand the action to Iowa state court and dismissed Sofonia's complaint based on
application of the Securities Litigation Uniform Standards Act of 1998 (SLUSA or
the Act), Pub. L. No. 105-353, 112 Stat. 3227 (codified as amended in scattered
sections of 15 U.S.C.). We affirm.

         In March 2001, the Board of Directors of Principal Mutual Holding Company
(PMHC), an Iowa mutual insurance holding company, adopted a plan to demutualize,
i.e., to convert from a mutual company into a stock company. As a mutual insurance
holding company, PMHC had no stockholders. Instead, PMHC was governed by the
policyholders of its wholly owned subsidiary, Principal Life Insurance Company
(Principal Life), a stock life insurance company. Principal Life policyholders held
membership interests in PMHC entitling them to, inter alia, vote on the election of
PMHC directors and receive proceeds in the improbable event of PMHC's liquidation.
Pursuant to the demutualization plan, all eligible Principal Life policyholders would
receive shares of common stock of Principal Financial Group, Inc. (PFG), a publicly
traded company, in exchange for their membership interests in PMHC.2 The
demutualization plan was submitted for approval to eligible Principal Life
policyholders, each of whom received a notice package containing a Policyholder
Information Booklet explaining the demutualization, a proxy card for voting on the
plan, and other related materials (collectively, the PIB). The Iowa Commissioner of
Insurance reviewed and authorized the demutualization plan and the PIB, the required
number of Principal Life policyholders voted in favor of the transaction, and the
demutualization became effective in October 2001.

       In April 2001, Principal Life policyholders settled a class action lawsuit
alleging that Principal Life had engaged in deceptive sales practices. See Grove v.

      2
       Although most eligible policyholders, including Sofonia, received shares of
PFG common stock in the demutualization, a small number of policyholders elected
to receive or were required by regulatory, tax, or administrative reasons to receive
cash or other consideration in lieu of PFG common stock.

                                        -2-
Principal Mut. Life Ins. Co., 

(S.D. Iowa 2001) (the Grove class
action).   Sofonia estimates that Appellees paid approximately $375
million—including attorney fees—to settle the Grove class action.

       After the demutualization was completed, Donald Sofonia, a member of the
Grove class and the putative class representative in this appeal, filed a complaint in
Iowa state court alleging that Appellees made deceptive statements in the PIB that
induced Principal Life policyholders to vote in favor of the demutualization.
According to Sofonia, this fraudulent conduct enabled Appellees to improperly shift
the economic costs of the Grove settlement back to the Grove class members because
the Grove class members received fewer shares of PFG common stock in the
demutualization than they would have received absent Appellees' misconduct.

      Asserting application of SLUSA, Appellees removed the action to federal court
and moved for dismissal, arguing that Sofonia's complaint alleged misrepresentations
or omissions in connection with the purchase or sale of covered securities under the
Act. Sofonia moved to remand the case to Iowa state court, disputing Appellees'
contention that SLUSA applied to preempt state-court jurisdiction.

       The District Court denied Sofonia's motion to remand and granted Appellees'
motion to dismiss. Sofonia now appeals, arguing that the District Court erred in
concluding that the exchange of PMHC membership interests for shares of PFG
common stock in the demutualization was a purchase of covered securities under
SLUSA. Sofonia also contends that the District Court erred in concluding that his
complaint asserts misrepresentations or omissions of material fact in connection with
the purchase or sale of covered securities under SLUSA. We review de novo both the
District Court's denial of Sofonia's motion to remand, see Nichols v. Harbor Venture,
Inc., 

, 860 (8th Cir. 2002), and its dismissal of Sofonia's action for
failure to state a claim upon which relief could be granted, see In re Acceptance Ins.
Cos. Sec. Litig., 

, 903 (8th Cir. 2005).

                                         -3-
       SLUSA, which amended the Securities Act of 1933 and the Securities and
Exchange Act of 1934, "expressly preempts all state law class actions based upon
alleged untrue statements or omissions of a material fact, or use of a manipulative or
deceptive device or contrivance, in connection with the purchase or sale of a covered
security." Dudek v. Prudential Sec., Inc., 

, 879 (8th Cir. 2002). The Act
was intended to "prevent plaintiffs from seeking to evade the protections that Federal
law provides against abusive litigation by filing suit in State, rather than in Federal,
court." H.R. Rep. No. 105-803 (Oct. 9, 1998) (Conf. Rep.). An action is subject to
removal and dismissal under SLUSA if the party seeking to invoke SLUSA's
application shows that (1) the action is a "covered class action" as defined in the Act
(2) the action purports to be based on state law, (3) the action alleges that the
defendant misrepresented or omitted a material fact (or used or employed a
manipulative or deceptive device or contrivance), and (4) the action alleges that the
defendant's misrepresentations or omissions of material fact were made "in
connection with the purchase or sale of a covered security." 15 U.S.C. §§ 77p(b)–(c),
78bb(f)(1)–(2); see also Green v. Ameritrade, Inc., 

, 596 (8th Cir. 2002).
Sofonia concedes that Appellees have satisfied the first and second criteria—his
lawsuit is a covered class action based on Iowa state law. Sofonia also concedes that
Appellees have satisfied the third criterion—his lawsuit alleges that Appellees
misrepresented or omitted material facts in documents disseminated in connection
with the demutualization. Sofonia disputes, however, that Appellees have satisfied
the fourth criterion—that his action alleges misrepresentations or omissions made by
Appellees in connection with a purchase or sale of a covered security. Therefore, "the
critical question is whether [the] complaint can reasonably be read as alleging a sale
or purchase of a covered security made in reliance on the allegedly faulty information
provided to [Sofonia] and to putative class members by [Appellees]." 

.

     Sofonia first argues that the District Court erred in concluding that the
demutualization involved covered securities as required for application of SLUSA.

                                          -4-
According to Sofonia, "[T]his case involves insurance products, not covered
securities, and is therefore outside the scope" of SLUSA. Brief of Appellant at 9.
This argument is unavailing.

        SLUSA defines a covered security as, inter alia, a security "listed, or authorized
for listing, on the New York Stock Exchange." 15 U.S.C. § 77r(b)(1)(A); see also
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 

, 1512 (2006).
While this definition excludes the PMHC membership interests surrendered by
Principal Life policyholders in the demutualization, it includes the shares of PFG
common stock received by the policyholders in exchange for their membership
interests. Because PFG common stock is traded on the New York Stock Exchange,
it falls precisely within SLUSA's definition of a "covered security."3 The District
Court did not err in reaching this conclusion.

      Sofonia next argues that the District Court erred in determining that his
complaint asserted a claim that Appellees misrepresented or omitted material facts "in
connection with the purchase or sale" of a covered security. After concluding that the
receipt of shares of PFG common stock by Principal Life policyholders in the
demutualization was a "purchase" within the scope of SLUSA, the District Court
went on to conclude that Sofonia's claim that Appellees made fraudulent statements


       3
        During oral argument, Sofonia suggested for the first time that because the
process for registering PFG common stock with the New York Stock Exchange was
not complete when the alleged misrepresentations or omissions were made by
Appellees, the shares of PFG common stock received by Principal Life policyholders
in the demutualization were not covered securities. Sofonia did not present this
argument to the District Court nor did he raise it in his briefs to this Court. "'[I]t is
well established that, unless a manifest injustice would result, a claim not articulated
to the district court is subject to forfeit on appeal.'" Ace Elec. Contractors, Inc. v. Int'l
Bhd. of Elec. Workers Local 292, 

, 903 (8th Cir. 2005) (citation to
quoted case omitted). Because no manifest injustice would result, we decline to
address this argument.

                                            -5-
in the PIB in order to induce policyholders to approve the demutualization amounted
to a claim that Appellees misrepresented or omitted material facts "in connection
with" the purchase of PFG common stock. The District Court ultimately concluded
that all requirements for application of SLUSA were satisfied. We agree.

       We construe the phrase "in connection with the purchase or sale of a covered
security" as used in SLUSA by looking to interpretations of identical language used
in § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and in
Securities and Exchange Commission (SEC) Rule 10b-5, 17 C.F.R. § 240.10b-5. See

(confirming that reference to § 10(b) and Rule 10b-5 to
interpret this phrase is appropriate); 

("To interpret [the phrase
"in connection with a purchase or sale of a covered security,"] we look to cases
interpreting identical language found in SEC Rule 10b-5 . . . and § 10(b) of the
Securities Exchange Act of 1934 . . . ."); Kircher v. Putnam Funds Trust, 

, 482 (7th Cir. 2005) ("Every court of appeals to encounter SLUSA has held that
its language has the same scope as its antecedent in Rule 10b-5."), cert. granted in
part, 

(2006). As used in § 10(b) and Rule 10b-5, the phrase "in
connection with the purchase or sale of a covered security" is "construed 'not
technically and restrictively, but flexibly.'" Affiliated Ute Citizens of Utah v. United
States, 

, 151 (1972) (quoting SEC v. Capital Gains Research Bureau,
Inc., 

, 195 (1963)); see also 

(noting that when
the Court has "sought to give meaning to [this] phrase in the context of § 10(b) and
Rule 10b-5, it has espoused a broad interpretation").

       We first address whether the exchange of PMHC membership interests for
shares of PFG common stock qualifies as a "purchase or sale." The exchange of an
existing security for a new security can qualify as a "purchase or sale" under federal
securities laws. See, e.g., SEC v. Nat'l Sec., Inc., 

, 465–68 (1969)
(concluding that shareholders of one company "purchased" shares in a new company
within the meaning of §10(b) and Rule 10b-5 by exchanging their old shares for

                                          -6-
shares in the new company in a merger transaction); Davidson v. Belcor, Inc., 

, 606 (7th Cir. 1991) ("It is well-established that the exchange of shares
during a merger transaction constitutes the purchase or sale of securities for purposes
of Section 10(b) and Rule 10b-5."); Knauff v. Utah Constr. & Mining Co., 

, 961 (10th Cir.) (noting that "purchase or sale" includes the exchange of shares
that occurs in a merger), cert. denied, 

(1969). Courts have looked to the
economic reality of a transaction to determine whether it qualifies as a "purchase or
sale." If a transaction results in "a fundamental transformation" of ownership
interests, "whether in terms of total assets represented . . . or in relative voting
power," it constitutes a "purchase or sale" as contemplated under federal securities
laws. Watts v. Des Moines Register & Tribune, 

, 1320 (S.D. Iowa
1981); see also In re Penn Central Sec. Litig., 

, 534 (3d Cir. 1974)
(concluding that in a merger transaction in which "the original shareholders of each
corporation end up with stock in a substantially different company with substantially
different assets and prospects," a purchase or sale under federal securities laws has
occurred). On the other hand, if a transaction amounts to a mere internal restructuring
of a business entity with no material change in ownership interests or risks, it is not
a "purchase or sale." See, e.g., Rathborne v. Rathborne, 

, 918–19 (5th
Cir. 1982) (observing that "arms-length stock-for-assets trade between two distinct
and independent corporations" constitutes a "purchase or sale," but holding that an
exchange of shares between a parent company and a wholly owned subsidiary
amounting to "a mere transfer between corporate pockets" does not (citations
omitted)); 

(holding that recapitalization was not a
"purchase or sale" when conversion of voting shares to nonvoting shares in
prescribed ratio reflected internal corporate management decision only incidentally
involving exchange of shares).

      With the approval of policyholders and the authorization of the Iowa
Commissioner of Insurance, PMHC developed a demutualization plan ensuring that
each Principal Life policyholder would receive a "fair and equitable" allocation of

                                         -7-
PFG common stock in exchange for his PMHC membership interest. Pursuant to this
plan, Sofonia and other policyholders exchanged their non-transferable membership
interests in PMHC for tangible, transferable, value-certain, shares of PFG common
stock. In making this exchange, the policyholders—including Sofonia—dramatically
altered the nature of their investment "from a non-liquid, non-property interest into
a concrete equity and ownership interest in a freely transferable security." Order of
the District Court at 14. This transaction was not a mere internal restructuring or
exchange of equivalent instruments, for the economic reality of the transaction
demonstrates that the policyholders purchased covered securities—PFG common
stock—in the transaction. The District Court did not err in reaching this conclusion.4

       We have concluded that the exchange of PMHC membership interests for
shares of PFG common stock was a purchase of covered securities under SLUSA.
We must next determine whether Sofonia's claim that Appellees made false
statements in the PIB in order to induce policyholders to approve the demutualization
plan constitutes a claim under SLUSA that the false statements were made "in
connection with" the purchase of covered securities. Sofonia argues that his claims
do not allege misrepresentations "in connection with" the purchase of covered
securities because any purchase of securities in the demutualization was merely
"incidental" to his underlying theory of recovery—that Appellees used the
demutualization to improperly recapture the costs of the Grove class action

      4
        Sofonia also contends that SLUSA should not apply because the putative class
includes some individual policyholders who received something other than shares of
PFG common stock in the demutualization and thus were not "purchasers" of
"covered securities." This argument is foreclosed by the Supreme Court's recent
decision in Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 

, 1515
(2006), holding that it is not "the identity of the plaintiffs," but the alleged conduct
of the defendants that "determine[s] whether the complaint alleges fraud 'in
connection with the purchase or sale' of securities." Accordingly, Sofonia cannot
avoid SLUSA's application by including some nonpurchasers or nonsellers of covered
securities in the putative class.

                                          -8-
settlement. Specifically, Sofonia contends that "[t]he presence of securities in this
case is incidental to [his] main concern, which is the wrongful recapture by Appellees
in the demutualization of the settlement benefits paid out by Appellees to the class
members in the [Grove] class action." Brief of Appellant at 12. As a result of
Appellees' false statements, Sofonia argues, he and other putative class members
received fewer shares of PFG common stock—and therefore less value—in the
demutualization than they were entitled to receive for their PMHC membership
interests.

       The crux of Sofonia's complaint is that Appellees made false statements in the
PIB to induce policyholders to approve the demutualization and that he and the other
putative class members did not receive fair value when they exchanged their
membership interests for shares of PFG common stock in the transaction. As noted
by the District Court, "The alleged fraudulent conduct was, therefore, an integral step
in [Sofonia's] exchange of his membership interest for PFG stock and the present
action satisfies the 'in connection with' requirement for SLUSA preemption." Order
of the District Court at 10; see also In re MetLife Demutualization Litig., 

. 267 (E.D.N.Y. 2004) (accepting without discussion that putative class
action alleging similar facts was a claim asserting fraudulent conduct "in connection
with the purchase or sale" of a covered security). Sofonia's complaint alleges that the
exchange of PMHC membership interests for shares of PFG common stock was the
means by which Appellees improperly recaptured the costs of the Grove settlement.
Any fraudulent statements allegedly made by Appellees to persuade policyholders to
approve this transaction most assuredly were made "in connection with" the
policyholders' purchase of PFG common stock. The District Court did not err in
reaching this conclusion.

      During oral argument, we raised an issue not addressed by Sofonia or
Appellees before the District Court or in the parties' briefs to this court. Specifically,
we asked whether the McCarran-Ferguson Act, 15 U.S.C. §§ 1011–1015, prevents

                                           -9-
application of SLUSA in this case. Appellees moved to file a supplemental brief
addressing this issue. We grant that motion, the brief is before us, and we conclude
that the McCarran-Ferguson Act does not preclude application of SLUSA.

       The McCarran-Ferguson Act prevents application of federal law if (1) the
application would "invalidate, impair, or supersede" a state law; (2) the state law was
"enacted . . . for the purpose of regulating the business of insurance"; and (3) the
federal law does not "specifically relate[] to the business of insurance." 

A claim only incidentally involving insurance is insufficient to trigger application of
the McCarran-Ferguson Act. Rather, the claim must involve a state law enacted with
the specific purpose of regulating the business of insurance in order to trigger
application of the McCarran-Ferguson Act. See Humana, Inc. v. Forsyth, 

, 308 (1999) ("We reject any suggestion that Congress intended to cede the field
of insurance regulation to the States, saving only instances in which Congress
expressly orders otherwise."). Here, Sofonia asserts only state common-law claims
against Appellees. Sofonia contends that Appellees breached their fiduciary duties
to policyholders, engaged in fraud and misrepresentation, and were unjustly enriched
as a result. Because each of these claims is based on state common-law principles
and none of the claims implicates a state statute enacted specifically to regulate the
business of insurance, the McCarran-Ferguson Act does not prevent application of
SLUSA. See 

application of SLUSA to bar Sofonia's state common-law claims
interfere with Iowa's regulation of insurance company demutualizations. Under
Iowa's system for regulating the insurance business, policyholders like Sofonia and
other members of the putative class who objected to PMHC's demutualization plan
had ample opportunity to present their objections at a public hearing before the Iowa
Insurance Commissioner, see Iowa Code § 508B.7, and, if the policyholders were still
dissatisfied, to have pursued direct judicial review of the Insurance Commissioner's
final decision in the Iowa courts, see 

508B.14. We are satisfied that

                                          -10-
the application of SLUSA to Sofonia's state common-law claims does not "invalidate,
impair, or supersede any law enacted by [the State of Iowa] for the purpose of
regulating the business of insurance." 15 U.S.C. § 1012(b).

      For the foregoing reasons, we affirm the judgment of the District Court.
                      ______________________________




                                       -11-