Gusinsky v. Barclays PLC et al
OPINION AND ORDER re: 61 MOTION to Dismiss the Second Amended Complaint, filed by Marcus A. P. Agius, Christopher Lucas, Barclays Capital Inc, John Varley, Barclays Bank PLC, Barclays PLC. For the foregoing reasons, Defendants' Motion to Dismiss is granted. The Clerk of the Court is ordered to close this motion [Dkt. No. 61] and this case. SO ORDERED. (Signed by Judge Shira A. Scheindlin on 5/13/2013) (ja)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
VLADIMIR GUSINSKY, TRUSTEE, FOR THE
VLADIMIR GUSINSKY LIVING TRUST,
Individually and on Behalf of All Others
OPINION AND ORDER
12 Civ. 5329 (SAS)
BARCLA YS PLC, et aI.,
SHIRA A. SCHEINDLIN, U.S.D.J.:
Plaintiffs I bring this putative class action on behalf of themselves and
others similarly situated (the "Class") against Barclays PLC, Barclays Bank PLC
("Barclays Bank"), and Barclays Capital Inc., ("BCI") (collectively, "Barclays"),
and John Varley, Robert Diamond, Christopher Lucas, and Marcus Agius
("Individual Defendants" and, together with Barclays, "Defendants"). The Class
Lead plaintiffs are Carpenters Pension Trust Fund of St. Louis and St.
Clair Shores Police & Fire Retirement System.
consists of all persons and entities who purchased American Depositary Shares
(“ADSs”) of Barclays PLC between July 10, 2007 and June 27, 2012, inclusive
(the “Class Period”), and were allegedly damaged thereby. Plaintiffs assert
violations of: (1) Section 10(b) of the Securities Exchange Act of 1934 (“Exchange
Act”) and Rule 10b-5 promulgated thereunder against all defendants; and (2)
Section 20(a) of the Exchange Act against the Individual Defendants.
Defendants move under Federal Rule of Civil Procedure 12(b)(6) to
dismiss the Second Amended Complaint (“SAC”) on the grounds that: (1)
Plaintiffs fail to plead any actionable misrepresentations; (2) Plaintiffs fail to plead
facts giving rise to a strong inference of scienter; (3) Plaintiffs fail to plead loss
causation; (4) many of the alleged misstatements are not actionable because they
are protected by the safe harbor provision in the Private Securities Litigation
Reform Act of 1995 (“PSLRA”), or the bespeaks caution doctrine; and (5)
Plaintiffs’ Section 20(a) claims for control person liability must be dismissed
because Plaintiffs have failed to adequately allege a primary violation of Section
10(b) or culpable participation on the part of the Individual Defendants.2 For the
following reasons, Defendants’ motion to dismiss is granted.3
Barclays PLC is a publicly held corporation based in the United
Kingdom (“U.K.”), that provides global financial services.5 Barclays PLC’s ADSs
are registered with the Securities Exchange Commission (“SEC”) pursuant to the
Exchange Act and traded on the New York Stock Exchange. Barclays Bank, a
wholly-owned subsidiary of Barclays PLC, is also a global financial services
Defendants’ Memorandum of Law in Support of Their Motion to
Dismiss the SAC (“Def. Mem.”) at 2-3 (Dkt. No. 62).
Plaintiffs move to strike Exhibits E, F and G submitted in support of
Defendants’ motion to dismiss. See Lead Plaintiffs’ Memorandum of Law in
Support of Motion to Strike Certain Exhibits Attached to the Declaration of
Matthew J. Porpora (Dkt. No. 65). Because I assume in deciding Defendants’
motion that the London Interbank Offered Rate (“LIBOR”) submissions were
material misstatements, Exhibits E, F, and G, which Plaintiffs contend were used
“to argue that Barclays’ LIBOR submission[s] were not material to investors . . . ,”
id. at 1 (citing Def. Mem. at 8), are irrelevant.
The facts in this section are taken from the SAC and various
investigative reports and business documents incorporated by reference therein.
See SAC ¶ 10.
provider.6 BCI, also a wholly-owned subsidiary of Barclays PLC, provides
securities brokerage and financial advisory services.7
Varley was Group Chief Executive Officer (“CEO”) of Barclays from
2004 until he resigned in 2011 and Diamond took over.8 Diamond was CEO from
January 1, 2011 to July 3, 2012, and President and Chief Executive of Corporate
and Investment Banking and Wealth Management prior to 2011.9 Lucas was Chief
Financial Officer and Group Finance Director during the Class Period.10 Agius
was Chairman of the Board from January 1, 2007 throughout the Class Period.11
Plaintiffs purchased Barclays ADSs during the Class Period.12
Barclays’ Role in Setting LIBOR Rates
See id. ¶ 11. See also Non-Prosecution Agreement Between Barclays
and the U.S. Department of Justice (“NPA”) ¶ 10.
See SAC ¶ 12. BCI’s direct parent is Barclays Group U.S., Inc., a
U.S. bank holding company and a wholly owned subsidiary of Barclays PLC. See
NPA ¶ 10.
See SAC ¶ 13.
See id. ¶¶ 14, 74.
See id. ¶ 15.
See id. ¶ 16.
See id. ¶ 23.
Plaintiffs’ fraud allegations arise out of Barclays’ participation in
setting the London Interbank Offered Rate (“LIBOR”). LIBOR is a benchmark
reference rate devised by banks in the 1980s at the behest of the British Bankers’
Association in order to bring a measure of uniformity to the market for instruments
such as interest-rate swaps, forward-rate agreements, and foreign currency
options.13 Today, LIBOR rates serve as reference rates underlying numerous
derivative financial instruments traded in the over-the-counter market and on
exchanges all over the world.14 In addition, LIBOR rates are the reference rates
underlying various types of loan agreements worldwide.15
LIBOR rates are produced for ten currencies and fifteen maturities,
i.e. borrowing periods, per currency.16 For each currency there is a bank panel
comprised of six to eighteen banks (“Contributor Banks”) that is intended to reflect
the balance of the market.17 Each Contributor Bank is asked to estimate the rate at
which it could borrow funds “by asking for and then accepting inter-bank offers in
a reasonable market size just prior to 11 am” (the “Submission Rates”), without
See id. ¶ 29.
See id. ¶ 30.
See id. ¶ 32.
See id. ¶ 33.
reference to rates contributed by other Contributor Banks.18 Thomson Reuters, the
designated calculation agent for LIBOR, collects the Submission Rates daily,
discards the highest and lowest twenty-five percent of the Submission Rates, and
averages the remaining rates to arrive at the LIBOR rate for a given currency and
maturity.19 Thomson Reuters distributes the resulting 150 LIBOR rates to the
market.20 Thomson Reuters also posts individual Submission Rates identified with
the responsible Contributor Bank.21
From at least 2005 until the present, Barclays has been a member of
all ten LIBOR bank panels.22 During the Class Period, Barclays made its daily
submissions through Barclays’ London Non-Sterling Liquidity Management Desk
(the “London Money Market Desk”), which was then part of BCI.23 Plaintiffs
Id. ¶¶ 34-35. The rates must be submitted by employees with primary
responsibility for the management of the Contributor Bank’s cash rather than the
bank’s derivative books. See id. ¶ 37.
See id. ¶¶ 38-39.
See id. ¶ 40.
See id. ¶ 41.
See id. ¶ 42. Also from 2005 to the present, Barclays has been a
member on a bank panel whose submissions are used to calculate the Euro
Interbank Offered Rate (“EURIBOR”), a reference rate overseen by the European
Banking Federation. See id.
See id. ¶ 43.
allege that Barclays participated in two schemes to manipulate its LIBOR
Submission Rates. First, Barclays’ traders attempted to influence LIBOR for
financial gain by directing LIBOR submitters to submit inaccurate Submission
Rates for Barclays.24 From 2005 through 2009, Barclays’ traders contacted
persons responsible for submitting Barclays’ Submission Rates to request that they
submit a specific rate, or alter the actual rate in a particular manner and in some
cases the Barclays submitters accommodated these requests.25 Barclays’ swap
traders also communicated similar requests to submitters from other Contributor
Banks with the goal of allowing the traders and their counterparts at other financial
institutions to increase profits or minimize losses.26
Second, Barclays attempted to enhance market perception of its
financial health by directing its LIBOR submitters to submit rates that were lower
than the rates at which it legitimately believed it could borrow funds.27
Specifically, Barclays’ management directed its Dollar LIBOR submitters to
submit rates that were closer to the expected rates of other Contributor Banks
See id. ¶ 45.
See id. ¶¶ 46-49.
See id. ¶ 50.
See id. ¶ 45.
rather than the accurate LIBOR rates, and the Dollar LIBOR submitters acceded to
the demands.28 The manipulations allegedly began in August 2007 in response to
negative publicity regarding Barclays’ liquidity and continued throughout at least
January 2009.29 Plaintiffs allege that “Barclays had no specific systems or controls
for its LIBOR or EURIBOR submissions process until December 2009” and did
not conduct formal monitoring until mid-2010.30 In addition, Barclays’
compliance department allegedly was aware of existing conflicts of interest and
improper instructions to submitters but did not take remedial action.31
The Alleged Materially False and Misleading Misstatements
Plaintiffs allege that Barclays’ investors were unaware of Barclays’
manipulation of LIBOR and EURIBOR rate submissions and lack of internal
controls prior to and throughout the Class Period and, in fact, were led to believe
that Barclays had robust internal controls based on materially false and misleading
statements made during the Class Period.32 Plaintiffs allege four categories of
See id. ¶¶ 53-55 (quoting NPA ¶¶ 36-37).
See id. ¶¶ 56-76.
Id. ¶¶ 77-79 (citing and quoting 6/27/12 Final Notice Issue by U.K.
Financial Services Authority ¶¶ 147, 149).
See id. ¶¶ 80-84.
See id. ¶ 86.
misstatements. First, Plaintiffs cite representations in Barclays’ financial
statements from 2006-2011 regarding: (a) risk management and internal controls;
(b) corporate responsibility and ethics; and (c) legal compliance (together,
“Business Practices”).33 Second, Plaintiffs refer to statements Diamond made
during a conference call in response to an analyst’s observation that Barclays
appeared to be “consistently paying slightly higher than most of the other U.K.
banks in the LIBOR rate.”34 Third, Plaintiffs allege that the Submission Rates
themselves were actionable misstatements.35 Fourth, Plaintiffs allege that
Barclays’ failure to disclose its contingent liabilities as required by the
International Accounting Standards Board and the SEC was an actionable
Barclays’ Disclosures Regarding the LIBOR Investigation
On April 27, 2011, Barclays disclosed in its first quarter 2011 interim
management statement that it was being investigated by the U.K. Financial
Services Authority (“FSA”), U.S. Commodity Futures Trading Commission
See id. ¶¶ 87-170.
Id. ¶¶ 108-109.
See id. ¶¶ 171-173.
See id. ¶¶ 188-195.
(“CFTC”), SEC, and U.S. Department of Justice (“DOJ”) concerning its LIBOR
submissions (together, the “Investigations”).37 In February 2012, regulators gave
Barclays an ultimatum: enter into a settlement regarding its conduct in
manipulating LIBOR rates or face criminal and civil charges.38
On June 27, 2012, after several months of negotiation, Barclays
announced that it had reached settlement agreements with the FSA, CFTC and DOJ
totaling over $450 million (the “Settlements”).39 That day, Barclays’ ADSs
declined twelve percent to close at $10.84 per ADS.40
STANDARDS OF REVIEW
Rule 12(b)(6) Motion to Dismiss
In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court
“must accept all non-conclusory factual allegations as true and draw all reasonable
inferences in the plaintiff’s favor.”41 “When there are well-pleaded factual
SAC ¶¶ 153, 161. In its 2011 Form 20-F, Barclays also disclosed a
European Commission investigation.
See id. ¶ 174.
See id. ¶ 175.
Simms v. City of New York, No. 11 Civ. 4568, 2012 WL 1701356, at
*1 (2d Cir. May 16, 2012) (citing Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir.
allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement for relief.”42 A claim is plausible “when the
plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”43 Plausibility
requires “more than a sheer possibility that a defendant has acted unlawfully.”44
In deciding a motion to dismiss, “a district court may consider the
facts alleged in the complaint, documents attached to the complaint as exhibits, and
documents incorporated by reference in the complaint.”45 A court may also
consider a document that is not incorporated by reference “where the complaint
‘relies heavily upon its terms and effect,’ thereby rendering the document ‘integral’
to the complaint.”46 When a securities fraud complaint alleges that material
misstatements or omissions were made in public documents required to be filed
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Accord Kiobel v. Royal
Dutch Petroleum Co., 621 F.3d 111, 124 (2d Cir. 2010).
Iqbal, 556 U.S. at 678 (quotation marks omitted).
Id. (quotation marks omitted).
DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010)
(citing Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)).
Id. (quoting Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir.
with the SEC, a court may take judicial notice of such documents, as well as
“related documents that bear on the adequacy of the disclosure . . . .”47
Heightened Pleading Standard under Rule 9(b) and the PSLRA
Federal Rule of Civil Procedure 9(b) requires that the circumstances
constituting fraud be alleged with particularity, although “[m]alice, intent,
knowledge, and other conditions of a person’s mind may be alleged generally.”
The PSLRA adds that in private securities fraud cases the complaint must “specify
each statement alleged to have been misleading [and] the reason or reasons why
the statement is misleading.”48 In addition, “the complaint shall, with respect to
each act or omission alleged to violate this chapter, state with particularity facts
giving rise to a strong inference that the defendant acted with the required state of
Leave to Amend
Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991).
Accord Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008).
15 U.S.C. § 78u-4(b)(1)(B).
Id. § 74u-4(b)(2).
Whether to permit a plaintiff to amend its complaint is a matter
committed to a court’s “sound discretion.”50 Federal Rule of Civil Procedure 15(a)
provides that leave to amend a complaint “shall be freely given when justice so
requires.” “When a motion to dismiss is granted, the usual practice is to grant
leave to amend the complaint,”51 particularly when a complaint is dismissed for
failure to plead fraud with adequate specificity under Rule 9(b).52 Leave to amend
should be denied, however, where the proposed amendment would be futile.53
Section 10(b) of the Exchange Act and SEC Rule 10b-5
Section 10(b) of the Exchange Act makes it illegal to “use or employ,
in connection with the purchase or sale of any security . . . any manipulative or
deceptive device or contrivance in contravention of such rules and regulations as
the Commission may prescribe . . . .”54 Under Rule 10b-5, one may not “make any
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir.
Hayden v. County of Nassau, 180 F.3d 42, 53 (2d Cir. 1999).
See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 108 (2d
See Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282
F.3d 83, 87 (2d Cir. 2002).
15 U.S.C. § 78j(b).
untrue statement of a material fact or  omit to state a material fact necessary in
order to make the statements made . . . not misleading . . . in connection with the
purchase or sale of any security.”55
“To sustain a private claim for securities fraud under Section 10(b), ‘a
plaintiff must prove (1) a material misrepresentation or omission by the defendant;
(2) scienter; (3) a connection between the misrepresentation or omission and the
purchase or sale of a security; (4) reliance upon the misrepresentation or omission;
(5) economic loss; and (6) loss causation.’”56
Material Misstatements or Omissions
In order to satisfactorily allege misstatements or omissions of material
fact, a complaint must “state with particularity the specific facts in support of
[plaintiffs’] belief that [defendants’] statements were false when made.”57 “[A]
17 C.F.R. § 240.10b-5. Courts have long recognized an implied
private right of action under Section 10(b) and Rule 10b-5. See Superintendent of
Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 13 n.9 (1971) (noting that “[i]t is now
established that a private right of action is implied under [Section] 10(b)”).
Ashland Inc. v. Morgan Stanley & Co., Inc., 652 F.3d 333, 337 (2d
Cir. 2011) (quoting Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552
U.S. 148, 157 (2008)). Accord Erica P. John Fund, Inc. v. Halliburton Co., —
U.S. — , 131 S. Ct. 2179, 2184 (2011). Because this Opinion resolves the claims
on the basis of the misstatement and loss causation requirements, I do not address
the other elements of fraud.
Rombach v. Chang, 355 F.3d 164, 172 (2d Cir. 2004) (internal
quotation marks omitted).
fact is to be considered material if there is a substantial likelihood that a reasonable
person would consider it important in deciding whether to buy or sell [securities] . .
. .”58 Mere “allegations that defendants should have anticipated future events and
made certain disclosures earlier than they actually did do not suffice to make out a
claim of securities fraud.”59
A securities fraud plaintiff is required to “prove both transaction
causation (also known as reliance) and loss causation.”60 Loss causation is “the
proximate causal link between the alleged misconduct and the plaintiff’s economic
harm.”61 “A misrepresentation is ‘the proximate cause of an investment loss if the
risk that caused the loss was within the zone of risk concealed by the
misrepresentations . . . .’”62 Therefore, “to plead loss causation, the complaint
must allege facts that support an inference that [defendant’s] misstatements and
Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt.
LLC, 595 F.3d 86, 92–93 (2d Cir. 2010) (internal quotation marks omitted).
Id. Accord Rothman v. Gregor, 220 F.3d 81, 90 (2d Cir. 2000).
ATSI, 493 F.3d at 106. Defendants do not dispute transaction
Id. at 106-07 (citing Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 346
(2005); Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 172 (2d Cir. 2005)).
Accord Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 157 (2d Cir. 2007).
In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501, 513 (2d Cir. 2010)
(quoting Lentell, 396 F.3d at 173) (emphasis in original).
omissions concealed the circumstances that bear upon the loss suffered such that
plaintiffs would have been spared all or an ascertainable portion of that loss absent
Control Person Liability Under Section 20(a) of the Exchange Act
“To establish a prima facie case of control person liability, a plaintiff
must show (1) a primary violation by the controlled person, (2) control of the
primary violator by the defendant, and (3) that the defendant was, in some
meaningful sense, a culpable participant in the controlled person’s fraud.”64
Plaintiffs raise four categories of misstatements: (1) Barclays’
representations about its Business Practices in its Financial Statements; (2)
Barclays’ contingent liability disclosures in its Financial Statements; (3) Barclays’
LIBOR submissions; and (4) Diamond’s conference call statements. As discussed
below, the first two categories are not actionable misstatements or omissions. The
second two categories, even if they are actionable, are too attenuated from the 2012
corrective disclosure to establish loss causation.
Material Misstatements or Omissions
Lentell, 396 F.3d at 175.
ATSI, 493 F.3d at 108 (citing S.E.C. v. First Jersey Secs., Inc., 101
F.3d 1450, 1472 (2d Cir. 1996)).
Barclays’ Statements Regarding Its Business Practices Are
Not Actionable Misstatements
Plaintiffs devote approximately forty pages of their Complaint to
quoting generic statements about Barclays’ Business Practices65 regarding
adherence to responsible practices; the possibility of liability to
third parties for its harmful conduct; the Company’s commitment
to the management of operational risk . . . ; the Company’s
commitment to promoting good corporate governance; the
Company’s operation of a system of internal controls which
provides reasonable assurance of effective and efficient operations
. . . including . . . compliance with laws and regulations; the
responsibility of the Board for ensuring that management
maintains a system of controls that provides assurance of effective
and efficient operations . . . ; the conclusion of the CEO and
Group Finance Director that the . . . Company’s disclosure
controls and procedures were effective; [and] statements
concerning LIBOR and the Company’s liquidity . . . .66
Plaintiffs claim that such statements were materially false and misleading because
they failed to disclose that:
Barclays swap traders had improperly requested that certain
Barclays LIBOR submitters submit false LIBOR contribution data
. . . ; Barclays swap traders had communicated with swap traders
from other LIBOR contributing banks and other financial
institutions requesting [favorable] LIBOR contributions . . . ;
Barclays, at the direction of senior management, submitted false
and inaccurate LIBOR information that underreported its actual
knowledge of Barclay’s borrowing costs and overall financial
See SAC ¶¶ 87-170.
Id. ¶ 105 (discussing 2007 financial statements). See also id. ¶¶ 118,
133, 152, 163 (discussing 2008-2011 financial statements).
stability . . . ; Defendants falsely stated that specific internal
controls were in place . . . to prevent the conduct that actually
occurred; internal controls were [not] being utilized; [and]
Defendants’ conduct knowingly violated [various laws].67
As a preliminary matter, the Second Circuit has rejected as
insufficiently “particular” precisely the style of pleading Plaintiffs use in this case
– a “complaint consist[ing] in large part of large block quotations with italicized
text, followed by a passage that reads ‘[t]he statements referenced in [the preceding
paragraphs] were each materially false and misleading when made for the reasons
set forth in ¶  . . . .’”68 In addition, Plaintiffs’ allegations with respect to the
financial statements are deficient for two substantive reasons.
First, the Second Circuit has held, as a blanket matter, that
“statements that are ‘too general to cause a reasonable investor to rely upon them’”
such as “generalizations about a company’s business practices and integrity” may
not form the basis for a Rule 10b-5 fraud claim.69 Many of the statements that
Id. ¶ 90.
Boca Raton Firefighters & Police Pension Fund v. Bahash, No. 12
Civ. 1776, 2012 WL 6621391, at *4 (2d Cir. Dec. 20, 2012). Accord Rombach,
355 F.3d at 172 (plaintiffs cannot plead fraud by “catalog[ing] a number of
statements made by the individual defendants, [without] explain[ing] with
adequate specificity how those statements were actually false or misleading” with
respect to the conduct alleged)
Bahash, 2012 WL 6621391, at *3 (quoting ECA, Local 134 IBEW
Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 206 (2d
Plaintiffs identified fall squarely within the Second Circuit’s definition of nonactionable puffery – for example statements about being a responsible global
citizen and doing business ethically.70 The court in Bahash found irrelevant the
argument that statements about a corporation’s integrity were actionable where
they “directly related” to the subject of the fraud claim, and clarified that “[t]he
‘puffery’ designation . . . stems from the generic indefinite nature of the statements
at issue, not their scope.”71
Second, even as to those Business Practices which might not be per se
non-actionable “puffery,” Plaintiffs’ allegations fail to connect the statements
about Barclays’ Business Practices to Barclays’ LIBOR practices.72 For example,
Plaintiffs attempt to clear this hurdle by arguing, with respect to statements about
legal compliance, that “when Barclays was telling the public that its ‘business may
not be conducted in accordance with applicable laws around the world’ Barclays
See, e.g., SAC ¶¶ 119-122 (discussing 2008 Financial Statements).
Bahash, 2012 WL 6621391, at *4.
Plaintiffs cite only one reference to LIBOR in Barclays’ public filings,
in the 2007 Form 20-F stating that “term LIBOR premiums rose” in the second half
of 2007 and that “the Group’s liquidity position remained strong.” SAC ¶ 104.
However, Plaintiffs do not focus on this statement or specify how it relates to
Barclays’ submission of allegedly false LIBOR rates.
was, at that time, actively violating laws around the world by manipulating
LIBOR.”73 If this were sufficient, then every individual who purchased the stock
of a company that was later discovered to have broken any law could theoretically
sue for fraud.74 This is precisely what the Second Circuit sought to avoid when it
declined to “‘bring within the sweep of federal securities laws many routine
representations made by investment institutions.’”75
Plaintiffs’ allegations that “statements concerning the Company’s
management of risk . . . were materially false and misleading because, when made,
the company knew it ‘had no specific systems or controls for its LIBOR or
Lead Plaintiffs’ Memorandum of Law in Opposition to Defendants’
Motion to Dismiss the SAC (“Pl. Opp.”) at 14 (emphasis in original).
The cases Plaintiffs cite for the proposition that “false statements
regarding legal compliance [are] actionable,” which predate the Second Circuit’s
summary opinion in Bahash, are distinguishable. In those cases, plaintiffs’
statements about business practices were directly related to the subject of the fraud.
In Lapin v. Goldman Sachs Grp., Inc., the court held that Goldman “attempted to
distinguish itself from other institutions based on its ‘truly independent investment
research’ while it allegedly knew . . . about the pervasive conflicts and the effect
they had on its research reports and buy recommendations, allegedly one of its core
competencies, yet it allegedly failed to disclose such material information to its
investors.” 506 F. Supp. 2d 221, 240 (S.D.N.Y. 2006). See also Richman v.
Goldman Sachs Grp., Inc., 868 F. Supp. 2d 261, 279 (S.D.N.Y. 2012) (“Given
Goldman’s fraudulent acts [involving conflicts of interest], it could not have
genuinely believed that its statements about complying with the letter and spirit of
the law and that its continued success depends upon it, valuing its reputation, and
its ability to address potential conflict of interests were accurate and complete.”).
Bahash, 2012 WL 6621391, at *4 (quoting ECA, 553 F.3d at 206).
EURIBOR submissions process’” also fall short. None of Barclays’ statements
regarding its Business Practices reference Barclays’ LIBOR submissions or appear
to contemplate LIBOR as a risk.76 Thus, even if representations about risk
management do not constitute “puffery,” here the connection between Barclays’
statements regarding risk management and its LIBOR practices is too attenuated to
find that the alleged LIBOR misconduct rendered the representations regarding risk
management materially misleading.77 Insofar as Plaintiffs’ risk management
arguments are based on the fact that Barclays, through its LIBOR practices, was
“subjecting itself to reputational damage, and civil and criminal liability,” again,
finding such statements actionable on these facts would render every financial
institution liable to every investor for every act that broke the law or harmed
reputation. In sum, Plaintiffs have not plausibly alleged that Barclays’ Business
Practices statements contained any material misrepresentations with respect to
See Pl. Opp. at 16 (discussing identified risks).
Compare In re Austl. & N.Z. Banking Grp., Sec. Litig., No. 08 Civ.
11278, 2009 WL 4823923, at *14 (S.D.N.Y. Dec. 14, 2009) (“The core weakness
in the Complaint is the plaintiff’s failure to match its theory of fraud to the public
statements made by ANZ” where “the [alleged] fraud consisted of ANZ’s
misrepresentation of its ‘equity finance practices’” but “[t]hose practices . . . are
not the subject of the representations cited in the Complaint.”) with Freudenberg v.
E*Trade Fin. Corp., 712 F. Supp. 2d 171, 190 (S.D.N.Y. 2010) (fraud adequately
alleged “where statements touting risk management were . . . juxtaposed against
detailed factual descriptions of the Company’s woefully inadequate or non-existent
credit risk procedures. . . .”).
Plaintiffs Have Not Alleged that Barclays’ Contingent
Liability Disclosures Were Materially Misleading
International Accounting Standard (“IAS”) 37 requires Barclays to
disclose the existence of a contingent liability “unless the possibility of an outflow
of resources embodying economic benefits is remote.” A contingent liability is “a
possible obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the entity . . . .”78
Plaintiffs argue that “Barclays’ ‘possible’ obligation stems from the
Company’s illegal conduct [in manipulating LIBOR rates] and thus the timing [for
disclosure] is self evident: it is when Defendants’ illegal conduct first occurred.”79
The notion that IAS 37 obligates companies to disclose any potentially illegal
conduct the instant it is committed because future liability is always possible, and
that failure to do so may form the basis for a material omission under Rule 10b-5,
is unrealistic and contrary to precedent.80 At most, the disclosure obligation would
Pl. Opp. at 25.
See, e.g., In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367, 377
(S.D.N.Y. 2004), aff’d sub nom. Albert Fadem Trust v. Citigroup, Inc., 165 F.
App’x 928 (2d Cir. 2006) (holding that “the federal securities laws do not require a
arise when an investigation into the conduct began, and the language of IAS 37
suggests that even an investigation does not trigger the duty to disclose where the
possibility of liability remains “remote.”
Barclays disclosed the existence of the Investigations on April 27,
2011 and stated: “It is not currently possible to predict the ultimate resolution of
the issues covered by the various investigations and lawsuits, including the timing
and scale of the potential impact on the Group of any resolution.”81 Because
Plaintiffs rely on the theory that the duty to disclose arose as soon as the illegal
conduct began, they do not argue that Barclays’ duty to disclose the pendency of
the Investigations arose earlier than 2011, when Barclays did disclose in
accordance with the requirements of IAS 37.82 Their fraud claims based on failure
to disclose under IAS 37 must therefore be dismissed.
company to accuse itself of wrongdoing”); Ciresi v. Citicorp, 782 F. Supp. 819,
823 (S.D.N.Y. 1991), aff’d, 956 F.2d 1161 (2d Cir. 1992) (“the law does not
impose a duty to disclose uncharged, unadjudicated wrongdoing or
mismanagement”); Ballan v. Wilfred Am. Educ. Corp., 720 F. Supp. 241, 249
(E.D.N.Y. 1989) (securities laws do not require corporate management “to direct
conclusory accusations at itself or to characterize its behavior in a pejorative
SAC ¶¶ 153, 161.
See id. ¶ 188 (where likelihood of the occurrence of a contingent
liability is more than remote, “financial statements are to disclose the nature of the
contingency and, where practicable, give an estimate of possible loss or range of
loss or state that such estimate cannot be made”).
Plaintiffs Fail to Connect Barclays’ LIBOR Submissions to
Their Alleged Losses
Plaintiffs allege that “the Dollar LIBOR Rate Submission Rates
submitted by Barclays’ London Money Market Desk from August 2007 through
January 2009 . . . were themselves materially false and misleading statements.”83
Plaintiffs cite to the NPA statement that, during this time period, “‘Barclays often
submitted inaccurate Dollar LIBORs that under-reported its perception of its
borrowing costs and its assessment of where its Dollar LIBOR submission should
have been’” at the direction of “‘[c]ertain members of management of Barclays.’”84
The alleged purpose of this manipulation was to submit rates “‘nearer to the
expected rates of other Contributor Panel banks’” and to “deceive the market about
the rate at which Barclays truly believed it could borrow funds.”85
Even assuming that Barclays’ LIBOR submissions are actionable
misstatements, which defendants dispute on the ground that they “‘could not have
Id. ¶ 171.
Id. (quoting NPA ¶ 36).
Id. ¶¶ 171 (quoting NPA ¶ 36), 173.
signficantly altered the ‘total mix’ of information made available,’”86 Plaintiffs do
not adequately plead loss causation. Plaintiffs rely on the efficient market theory
to allege that Defendants “engaged in . . . a [course of conduct] to deceive the
market that artificially inflated Barclays ADSs . . . by misrepresenting the
Company’s then current state of affairs” including “the interest rate at which the
company believed it could borrow funds.”87 Plaintiffs argue that they may plead
loss causation by “‘identify[ing] particular disclosing event[s] that reveal the false
information, and t[ying] dissipation of artificial price inflation to those events.’”88
However, the allegations in the SAC utterly fail to make that connection.
The alleged fraudulent submissions occurred between 2007 and
Def. Mem. at 19 (quoting Basic v. Levinson, 485 U.S. 224, 231-32,
238 (1988) (emphasis in original)). Defendants argue that “[d]uring the financial
crisis, no reasonable investor would have relied upon Barclays’ LIBOR
submissions to measure Barclays’ borrowing costs because (1) it was widely
reported at the time that LIBOR had ceased to accurately reflect real prices at
which funds could be borrowed and (2) Barclays provided detailed disclosures to
the market regarding its actual sources of funding and the financial figures
underlying its liquidity position – which are not alleged to have been false. See id.
at 20-21 (“By at least April 2008, it was widely known and reported that LIBOR
submissions did not even reflect accurate opinions because banks were reportedly
making artificially low LIBOR submissions.”).
Compl. ¶ 196 (emphasis added).
Pl. Opp. at 36 (quoting In re IPO Sec. Litig., 544 F. Supp. 2d 277, 289
(S.D.N.Y. 2008) (internal quotation omitted)).
2009.89 The SAC alleges that the corrective disclosure occurred on June 27, 2012,
when Barclays announced the Settlements and the DOJ released its NonProsecution Agreement, along with other regulatory documents.90 Even if the false
LIBOR submissions in 2009 and earlier misled the market regarding Barclays’
financial health, and thus artificially inflated the stock price, there is no allegation
that the LIBOR submissions between 2009 and 2012 were also false and
misleading such that the ADS price would have remained artificially inflated.
The disconnect between the corrective disclosure – publication of the
Settlements in 2012 – and the information concealed by the Submission Rates in
2009 and earlier is further amplified by the presence of specific information about
Barclays’ financial condition in its Financial Statements, both at the time that the
allegedly fraudulent rates were being submitted91 and from 2009 through 2012,
when the Submission Rates are not alleged to be fraudulent.92 The notion that the
See NPA ¶ 20 (finding the most recent LIBOR-related misconduct to
have occurred in June 2009).
See SAC ¶¶ 175, 198.
See, e.g., Barclays’ 2007 Form 20-F, Ex. B to Porpora Decl., at 92
(disclosing that “term funding in the interbank markets substantially disappeared”
but that “liquidity remained good for Barclays”).
See Lentell, 396 F.3d at 177 (“[W]here (as here) substantial indicia of
the risk that materialized are unambiguously apparent on the face of the disclosures
alleged to conceal the very same risk, a plaintiff must allege (i) facts sufficient to
support an inference that it was defendant’s fraud – rather than other salient factors
market would fail to digest three years of non-fraudulent Submission Rates and
other more detailed financial information, and would instead leave intact artificial
inflation as a result of fraudulent Submission Rates during the financial crises is
implausible93 and runs afoul of the Second Circuit’s admonition against loss
causation based on “attenuated” connections.94
Finally, the Second Circuit has rejected the notion that “even if no
new financial facts were revealed [to the market],” plaintiffs may establish loss
causation by showing that a “temporary share price decline” as a result of negative
publicity was a foreseeable risk of the alleged LIBOR misconduct.95 Plaintiffs’
inability to plausibly allege that the information concealed by the false Submission
Rates in 2007 through 2009 was revealed by the 2012 Settlements and caused their
losses is fatal under Second Circuit precedent.
– that proximately caused plaintiff’s loss.”).
See Westwood v. Cohen, 838 F. Supp. 126, 133 (S.D.N.Y. 1993)
(“Under the efficient market theory [public information] is incorporated quickly
into the stock price.”) (citing Basic, 485 U.S. at 241-45).
See Lentell, 396 F.3d at 175 (quoting Emergent Capital Inv. Mgmt.,
LLC v. Stonepath Group, Inc., 343 F.3d 189, 199 (2d Cir. 2003)).
In re Omnicom, 597 F.3d at 513-14 (rejecting the argument that “even
if no new financial facts were revealed in June 2002, Callander’s resignation and
the ensuing negative media attention were foreseeable risks of the fraudulent
Seneca transaction and caused the temporary share price decline in June 2002”).
Plaintiffs Fail to Connect Diamond’s Conference Call
Statements to Their Alleged Losses
In response to an analyst’s observation during an October 31, 2008
conference call that Barclays was “consistently paying slightly higher rates than
most of the other U.K. banks in the LIBOR rate,” Diamond stated: “we’re
categorically not paying higher rates in any currency” and “we benefit in times of
turmoil, so we post where we’re transacting, and it’s clearly not at high levels.”96
Even assuming that Diamond’s statements were materially misleading, Plaintiffs
fail to connect these 2008 statements to any loss experienced in 2012 for the same
reasons that the allegedly false LIBOR Submission Rates bear no relationship to
the alleged losses.
Plaintiffs’ Control Person Allegations Must Be Dismissed for
Failure to Allege a Primary Violation
A primary violation of the securities laws is an element of control
person liability under Section 20(a).97 Because I have already held that Plaintiffs
have not adequately alleged a primary violation, Plaintiffs’ control person claim
must also be dismissed.
Leave to Amend Is Denied
SAC ¶¶ 108-109.
See ATSI, 493 F.3d at 108.
Plaintiffs are typically granted leave to amend at least once,
particularly when claims are dismissed for failure to meet the heightened pleading
standards under Rule 9(b). In this case, however, Plaintiffs received notice of the
deficiencies in their First Amended Complaint at a pre-motion conference on
January 10,2013, and in a follow up letter of January 16,2013, and were given,
and took, the opportunity to amend again. 98 Moreover, the reasons that the
allegations in the SAC are insufficient, as set forth above, do not go to lack of
specificity but are fundamental deficiencies under the securities laws. Because
amendment would be futile, I will not grant leave to file a third amended
F or the foregoing reasons, Defendants' Motion to Dismiss is granted.
The Clerk of the Court is ordered to close this motion [Dkt. No. 61] and this case.
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See 1110/13 Transcript ("I am assuming it will be a better motion and I
won't need to grant leave to amend. You could have anticipated everything he is
saying. I don't need to do this thing twice.").
New York, New York
May 13, 2013
David Avi Rosenfeld, Esq.
Samuel Howard Rudman, Esq.
Christopher Michael Barrett, Esq.
Robbins Geller Rudman & Dowd LLP
58 South Service Road, Suite 200
Melville, NY 11747
Gregory Mark Nespole, Esq.
Robert B. Weintraub, Esq.
Wolf Haldenstein Adler Freeman & Herz LLP
270 Madison Avenue
New York, NY 10016
Jonathan D. Schiller, Esq.
James Meadows, Esq.
Boies Schiller & Flexner LLP
575 Lexington Avenue
New York, NY 10022
Michael Brille, Esq.
Boies Schiller & Flexner LLP
5301 Wisconsin Avenue NW
Washington, D.C. 20015
David H. Braff, Esq.
Jeffrey T. Scott, Esq.
Matthew S. Fitzwater, Esq.
Matthew J. Porpora, Esq.
Sullivan & Cromwell LLP
125 Broad St.
New York, NY 10004
Andrew J. Levander, Esq.
1095 Avenue of the Americas
New York, NY 10036
Cheryl A. Krause, Esq.
2929 Arch Street
Philadelphia, PA 19104