IBEW Local 90 Pension Fund v. Deutsche Bank AG et al
Filing
34
OPINION AND ORDER: For the reasons set forth above, defendants motion to dismiss the Amended Complaint is DENIED as to defendant Deutsche Bank and defendants Ackermann, Banziger and Di Iorio. It is GRANTED with respect to Borsig. The PSLRA stay of di scovery is hereby lifted. In light of the length of time that has already passed, the parties are encouraged immediately to commence appropriate discovery. The Court will hold an initial pre-trial conference on April 16, 2013, at 1:00 p.m. The parti es should refer to the Courts individual rules regarding matters to be addressed prior to and at that conference. The Clerk of Court is directed to terminate the motion at ECF No. 24. ( Initial Pretrial Conference set for 4/16/2013 at 01:00 PM before Judge Katherine B. Forrest.) (Signed by Judge Katherine B. Forrest on 3/27/2013) (ago)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
:
IBEW LOCAL 90 PENSION FUND, on
:
behalf of itself and all others similarly
situated,
:
:
Plaintiffs, :
:
:
-v:
:
DEUTSCHE BANK AG, et al.,
Defendants. :
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: March 27, 2013
11 Civ. 4209 (KBF)
OPINION & ORDER
KATHERINE B. FORREST, District Judge:
Most lawsuits alleging violations of Section 10(b) of the Securities Exchange
Act of 1934 are based on purported misstatements or omissions. Typically,
plaintiffs assert a series of alleged misstatements; defendants defend against such
allegations by isolating the statements (or omissions), one by one, and explaining
how they are not in fact actionable. In such cases, each statement provides its own
battleground: who made it, what was his or her state of mind, was it false or
believed to be false at the time, did plaintiffs rely upon it or has it been factored into
the market price, and can the statement be causally tied to loss?
Proceeding in this manner is, however, only one way to litigate a claim for a
violation of Section 10(b). Plaintiffs may also allege that a course of conduct
amounts to a fraudulent scheme designed to mislead investors. Such a course of
conduct may, but need not necessarily, involve separately actionable statements.
Some cases allege violations of Section 10(b) that include both a scheme to defraud
and a series of misstatements or omissions. This is such a case.
Plaintiffs here assert that Deutsche Bank and four individuals in its senior
management oversaw a scheme to inflate the company’s stock price and maximize
profits. According to plaintiffs, defendants effectuated their scheme by originating
or acquiring residential mortgages and by packaging them into residential
mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDOs”),
which they knew presented far greater risk than they told the market.
According to plaintiffs, defendants knew that the market had an appetite for
such securities, that the bank benefitted by having the revenues associated with
sales of such securities prop up its stock price, and they also knew that the RMBS
and CDOs were increasingly risky and approaching junk status. Indeed, the bank
was sufficiently certain that such securities would lose value that they allowed a
trader to take a multi-billion dollar short position on (that is, a bet against) RMBS
and CDOs, some of which the bank itself had structured and marketed.
The bulk of the allegations in the Amended Complaint are drawn from
alleged misconduct set forth in a report prepared by the U.S. Senate’s Levin-Coburn
Subcommittee (“Levin-Coburn Report”) (id. ¶¶ 25-80), a complaint filed by the
Department of Justice against Deutsche Bank (id. ¶¶ 81-129), and a complaint filed
by the Federal Housing Finance Agency (“FHFA”) (id. ¶¶ 130-138). 1
On June 21, 2011, various investment funds commenced this putative class action was against
Deutsche Bank AG and four individuals alleging violations of various provisions of the Securities
Exchange Act of 1934. (Compl., ECF No. 1.) On December 5, 2011, Building Trade United Pension
Trust Fund, the Steward Global Equity Income Fund and the Seward International Enhanced Index
1
2
In response, defendants assert that plaintiffs’ allegations of a “scheme” are an
afterthought, that the numerous statements that individuals within Deutsche Bank
are alleged to have made are merely subjective opinion, accurate statements of past
performance, or non-actionable statements of corporate optimism. They argue that
even if such statements were actionable, they were not made with requisite
scienter, the individual defendants were not the “makers” of any actionable
statements, and that plaintiffs fail to allege loss causation. In short, they move to
dismiss the entirety of the amended complaint as having insufficient factual
allegations to support a claim. This Court disagrees.
For the reasons set forth below, the Amended Complaint states claims for
violations of Sections 10(b) and 20(a) of the Securities Exchange Act as to all
defendants but one. The motion to dismiss is, therefore, DENIED, except as to
defendant Börsig.
I.
ALLEGATIONS IN THE AMENDED COMPLAINT
The Amended Complaint contains the following allegations, taken as true for
purposes of this motion.
Fund (“the Funds”) were appointed lead plaintiffs and the firm of Robbins Gellar Rudman & Dowd
LLP was appointed lead counsel. (Mem. & Order, ECF No. 18.) The parties then stipulated that
plaintiffs could wait to file an amended complaint until two weeks following the filing of an
anticipated amended complaint in United States v. Deutsche Bank AG, No. 11 Civ. 2976 (S.D.N.Y.
filed May 3, 2011). (Stipulation & Order, ECF No. 21.) Plaintiffs filed an Amended Complaint on
June 1, 2012. (Am. Compl., ECF No. 23.) Defendants moved to dismiss on July 23, 2012. (Mot.
Dismiss, ECF No. 24.) That motion became fully briefed on October 9, 2012. (Reply Mem. Supp.
Mot. Dismiss, ECF No. 30.) The case was transferred to the undersigned on November 9, 2012.
(Notice of Reassignment, ECF No. 32.)
3
Plaintiffs are purchasers of shares of Deutsche Bank stock during the period
from January 3, 2007, through January 16, 2009. 2 In the third paragraph of the
Amended Complaint — stated clearly and prominently — plaintiffs assert that
defendants engaged in a scheme to maximize profits at the expense of investors by
originating and acquiring fraudulent and misrepresented RMBS. (Am. Compl. ¶ 3,
ECF No. 23.) An RMBS is “a type of bond in which investors acquire an interest in
the principal and interest payments generated by the underlying pool of residential
mortgages.” (Id.) Each RMBS is divided into tranches, or levels of seniority, with
the more senior having less risk (because they are paid first) than the more junior
(Id.) All levels bear some risk that none of the tranches may be paid in the event of
a default.
In addition, “[t]he most risky portions or interest in the various RMBS were
rebundled into yet another security called a Collateralized Debt Obligation (“CDO”),
and then resold to other investors.” (Id.) Plaintiffs assert that the substantial
profits defendants stood to make by packaging and selling RMBS and CDOs
motivated them to conceal risks associated with the poor quality of the underlying
mortgages. (Id. ¶ 4.) In addition, Deutsche Bank pursued the CDO market despite
its growing awareness and knowledge of its riskiness, in order to protect investment
bank fees, prestige, and to preserve the CDO jobs involved. (Id. ¶ 42.) The head of
In Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869, 2888 (2010), the Supreme Court held
that the securities laws only apply to securities transactions that take place in the United States or
on domestic exchanges. See also Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d
Cir. 2012). Accordingly, to the extent the Amended Complaint purports to include claims by class
members who acquired shares in Deutsche Bank outside of the United States, such claims are
dismissed. This action shall proceed with respect only as to those who engaged in domestic
securities transactions.
2
4
Deutsche Bank’s CDO Group stated that the bank’s fees translated into about $5-10
million per CDO. (Id. ¶ 44.) The same individual stated that new CDO deals had to
be continuously completed in order to produce revenues the support the budgets of
the CDO desks and departments involved in their creation. (Id.)
According to plaintiffs, defendants’ fraudulent scheme had four parts: (1)
Deutsche Bank structured and marketed to unknowing third parties RMBS that it
knew were poor quality; (2) defendants misrepresented Deutsche Bank’s risk
management practices; (3) defendants concealed Deutsche Bank’s failure to write
down impaired securities containing mortgage-related debt; and (4) that Deutsche
Bank, along with a subsidiary it acquired for mortgage origination, “intentionally
disregarded findings that residential mortgage loans did not comply with
underwriting standards.” (Id. ¶ 6.)
Plaintiffs also assert that information set forth in the Levin-Coburn Report
and the DOJ’s complaint reveal that Deutsche Bank knew or should have known of
a host of problems with the RMBS it was marketing, and that their public
statements regarding risk management practices were wrong. According to
plaintiffs, based on this information, some of which is alleged to have been acquired
before the class period commenced and other information was acquired during the
class period, defendants made a variety of omissions and misstatements in
furtherance of their alleged scheme.
In particular, plaintiffs assert that a variety of internal communications
demonstrate that Deutsche Bank’s top global RMBS trader, Greg Lippmann,
5
warned Deutsche Bank officers and employees that RMBS it was marketing were
“crap.” (Id. ¶¶ 26-27.) In fact, Lippmann bet against mortgage-related securities by
taking a short position in the billions of dollars. (Id. ¶ 27.) Plaintiffs specifically
allege that at least some of the RMBS securities Lippmann was discussing were
issued by or associated with Deutsche Bank. (Id. ¶ 29.) In the fall of 2005,
Lippmann requested and received permission from his supervisor at Deutsche
Bank, the Global Head of its Structured Products Group, to enter into credit default
swap (“CDS”) arrangements in the amount of $1 billion to short RMBS. (Id. ¶ 34.)
He made a presentation in which he described a negative view of the subprime
market and that $440 billion in subprime mortgages would experience payment
shocks in the next three years. (Id.) He also noted that because of the strong
negative correlation between home price appreciation and loss severity, if homeprice appreciation rates slowed, default and severity ratios might increase
substantially in certain geographies. (Id.) Because Lippmann’s position was so
large, his supervisor required him also to obtain authorization from Rajeev Misra,
Deutsche Bank’s Global Head of Credit Trading, Securitization and Commodities.
(Id. ¶ 35.) Misra approved Lippmann’s position.
The Amended Complaint alleges that throughout 2006, Lippmann’s large
position betting against RMBS grew — and with its growing size, it gained
significant additional attention within Deutsche Bank. (Id. ¶ 36.) The size of
Lippmann’s position eventually reached $2 billion.
6
At the same time that Lippmann was building his short position on the bet
that the price and performance of CDO’s would decline, Deutsche Bank continued to
structure and market CDOs. (Id. ¶ 43.) In order to increase sales of CDO
inventory, CDOs were repackaged into other CDOs — something a Deutsche Bank
managing director described as a “CDO2 balance sheet dump.” (Id. ¶ 46.) In
addition, Deutsche Bank turned increasingly to non-U.S. investors to buy CDOs.
(Id. ¶ 47.) In late 2006, Lippmann described the process of structuring and selling
CDOs as a “ponzi scheme.” (Id. ¶ 48.)
In February and March 2007, sales of CDOs were slowing; in March 2007,
Deutsche Bank structured and marketed a $1.1 billion CDO called “Gemstone 7.”
(Id. ¶ 50.) While the top three tranches of those securities started out rated AAA,
by November of 2007 they began to be downgraded — and were eventually
downgraded to junk status. (Id. ¶ 50.) Prior to the issuance of Gemstone 7, the
Deutsche Bank’s CDO Group prepared a credit report for Deutsche Bank’s internal
credit-risk management group as part of the process of obtaining approval for
Gemstone 7. (Id. ¶ 51.) Gemstone 7 was described, inter alia, as having “significant
vintage risk”; those risks were not described in the Gemstone 7 offering materials.
(Id.) Many of the assets that went into Gemstone 7 were from Deutsche Bank’s own
inventory; Lippmann described these assets to colleagues and clients as “crap.” (Id.
¶ 52.) Within days of sending an email in which he discussed some of the assets as
“weak[]” and “performing poorly with substantial delinquencies,” they were
included in Gemstone 7 and marketed to investors. (Id. ¶¶ 53, 54.) Lippmann and
7
a trader discussed Deutsche Bank’s inventory that was included in Gemstone 7,
stating: “DOE[SN’T] THIS DEAL BLOW.” (Id. ¶ 59.) In January 2007, Deutsche
Bank began to market Gemstone 7 aggressively. (Id. ¶ 64.) Aware that the market
for CDOs was deteriorating, personnel within Deutsche Bank worked to accelerate
sales. (Id. ¶ 65.) Two high-level employees discussed trying to sell Gemstone 7
“while we still can”; one stated: “Keep your fingers crossed but I think we will be
price this just before the market falls off a cliff.” (Id. ¶ 67.)
In a series of emails regarding other assets included in Deutsche Bank CDOs,
Lippmann similarly described them as already risky, “generally horrible,” agreeing
that they were “crap” and that they “stink[].” (Id. ¶¶ 56-58.) In late 2006 and early
2007, Lippmann’s short position began to gain in value — further capturing
internal attention. (Id. ¶ 38.) In January 2007, Lippmann met with Anshu Jain,
Deutsche Bank’s Head of Global Markets along with Misra and D’Albert to discuss
his short position; following the discussion they concluded that he should maintain
his position. (Id.) In February 2007, Jain again met with Lippmann to discuss his
short position; at this time, sub-prime delinquencies were occurring at record rates.
In February or early March, Jain also participated in a meeting with Deutsche
Bank’s executive committee, including its Management Board. (Id. ¶ 39.)
Lippmann was invited to attend. (Id.) At this time, Lippmann’s short position was
approximately $4-5 billion. (Id.) At the same time, Deutsche Bank’s mortgage
group also held $102 billion in long RMBS and CDO securities; a Deutsche Bank
hedge fund affiliate, Winchester Capital, held a net long position of $8.9 billion. (Id.)
8
The meeting ended with the decision that all parties would maintain their positions
unchanged, including Lippmann. (Id.)
In July 2007, major credit rating agencies began issuing downgrades of
RMBS. (Id. ¶ 41.) By the end of the summer, Deutsche Bank initiated efforts to sell
off its long positions. (Id.) At the direction of senior management, Lippmann
gradually began to cash in his short position, obtaining a return of $1.5 billion. (Id.)
According to Lippmann, this was the largest profit Deutsche Bank had ever
obtained from a single short position. (Id.)
Plaintiffs allege that there is evidence that Deutsche Bank “deliberately
misled CDO investors in order to offload overpriced CDO securities.” (Id. ¶ 69.) For
instance, when some potential investors inquired about the mark-to-market
(“MTM”) value of Gemstone 7’s underlying assets, they were not provided the lower
valuation marks prepared by Deutsche Bank itself. (Id. ¶¶ 69-72.) When one
Deutsche Bank employee asked why they could not show their own marks he was
told that they were “too low.” (Id. ¶ 73.)
Between December 2006 and December 2007, Deutsche Bank issued 15 new
CDOs worth approximately $11.5 billion. (Id. ¶ 76.) It underwrote a CDO for
Magnetar Capital (“Magnetar”) and served as trustee for two other Magnetar
CDOs; Magnetar’s strategy (of which Deutsche Bank was aware) was to purchase
the riskiest tranche of the CDO (the equity) and also take short positions on the
other tranches of the same CDOs. (Id. ¶ 76.) Plaintiffs allege that Magnetar
worked with financial institutions, including Deutsche Bank, to structure risky
9
CDOs; “Magnetar would receive a substantial payment from its short positions if
the securities lost value.” (Id. ¶ 76.) Deutsche Bank also worked with Elliot
Advisors, and Paulson & Co., two hedge funds, that also bought the equity tranche
and shorted the remainder; Deutsche Bank “sold the rest of the securities.” (Id. ¶
78.) Plaintiffs assert that there are repeated instances in which Deutsche Bank
sold investors CDO securities while its own employee, Lippmann, was shorting
some of the same assets, and while it was working with other hedge funds to short
the same assets. (See, e.g., id. ¶¶ 75-80.)
In order to obtain the mortgage inventory that went into the CDOs it
structured and sold, Deutsche Bank and a subsidiary it acquired in 2007,
MortgageIT, generated many federally guaranteed mortgages quickly. (Id. ¶ 83.)
Deutsche Bank qualified as a “Direct Endorsement Lender”; such lenders are
required to certify that they comply with certain Federal Housing Authority
(“FHA”) quality control plans with respect to underwriting. (Id. ¶ 82.) Plaintiffs
allege that in pursuit of mortgage inventory, Deutsche Bank and MortgageIT failed
to audit early payment defaults, to appropriately staff or perform quality control, to
address dysfunctions within the quality control system about which senior
management had been informed, and that they ignored (by never opening the
envelopes) findings of control lapses by outside auditors. (Id. ¶ 84.) Following the
housing market crash, the federal government had to pay hundreds of millions of
dollars in insurance claims and related costs arising out of MortgageIT’s approval of
mortgages for FHA insurance. (Id. ¶ 86.)
10
Plaintiffs allege that the acquisition of MortgageIT was part of the overall
scheme to mislead investors: MortgageIT engaged in risky loans which were then
included in Deutsche Bank CDOs. (See, e.g., id. ¶¶ 90-99.) Deutsche Bank even
had a Credit Risk Committee and a Quality Control Committee — both of which
plaintiffs allege did not perform their jobs adequately. (See, e.g., id. ¶¶ 90-107.)
Plaintiffs allege that “[c]ontrary to Deutsche Bank’s representations to HUD,
MortgageIT was not doing the required quality control reviews after January 2007.
And, by the end of 2007, MortgageIT was not reviewing early payment defaults on
closed FHA-insured loans. This failure to conduct the requisite quality control
reviews resulted in an explosion of early payment defaults.” (Id. ¶ 127.)
On May 10, 2012, Deutsche Bank and three of its subsidiaries, including
MortgageIT, entered into a settlement agreement with the U.S. Department of
Justice. The settlement required Deutsche Bank to pay $202.3 million. In the
stipulation of settlement, Deutsche Bank admitted that the Deutsche Bank
defendants “were in a position to know that the operations of MortgageIT did not
conform fully to all of HUD-FHA’s regulations, policies, and handbooks; [and] that
one or more of the annual certifications was signed by an individual who was also
an officer of certain of the [Deutsche Bank] Defendants.” (Id. ¶ 129.)
Deutsche Bank was also sued by the Federal Housing Finance Authority in
September 2011. (Id. ¶ 130.) “According to the FHFA’s investigation, Deutsche
Bank had falsely represented that the underlying mortgages complied with the
represented underwriting guidelines and had significantly overstated both the
11
value of the underlying property and the borrowers’ ability to repay the mortgages,
and had misrepresented the percentage of owner-occupied properties and the loanto-value ratios.” (Id. ¶ 130.) Deutsche Bank had been paid over $14.2 billion for the
misrepresented RMBS between September 2005 and June 29, 2007. (Id.) Plaintiffs
allege that Deutsche Bank and its employees’ “knowledge of the false and improper
underwriting practices impacting its mortgages and RMBS is demonstrated by,
inter alia, systemic misrepresentations of the loan characteristics of its RMBS” and
ignoring advisors who indicated that there was a failure to comply with
underwriting standards. (Id. ¶ 135.)
During the putative class period, January 3, 2007, to January 16, 2009, in
connection with and in furtherance of their alleged fraudulent scheme, defendants
are alleged to have made a number of false and misleading statements:
1. A false statement in January 2007 relating to its acquisition of
MortgageIT being accretive to earnings and to assist it in growing its
business; according to plaintiffs defendants failed to disclose their
knowledge of the widespread underwriting misconduct and poor quality
mortgages; and that defendants knew or recklessly disregarded that many
loans being issued would default. (Id. ¶¶ 139-40.)
2. On March 27, 2007, Deutsche Bank’s SEC Form 20-F contained explicit
statements regarding overall risk and capital management supervision;
plaintiffs allege that these statements were misleading because they
12
failed to disclose and were inconsistent with the poor quality RMBS and
CDO assets Deutsche Bank was then structuring and selling. (Id. ¶ 141.)
3. On May 8, 2007, Deutsche Bank announced that because of market
volatility, including as to MortgageIT and the sub-prime effects, it had
decided to “tighten even further our credit standards.” Plaintiffs allege
that these statements were misleading because they failed to disclose and
were inconsistent with the poor quality RMBS and CDO assets that it was
structuring and selling. (Id. ¶ 143.)
4. On June 14, 2007, Bänziger of Deutsche Bank participated in a conference
in which he “assured investors that Deutsche Bank employed ‘[p]rudent
risk management’ and ‘[h]igh underwriting standards’.” (Id. ¶ 144.)
Plaintiffs allege that these statements were misleading because they
failed to disclose and were inconsistent with the poor quality RMBS and
CDO assets that it was structuring and selling. (Id.)
5. On August 1, 2007, in connection with its second quarter results,
Deutsche Bank again stated that it had consistently, and would continue
to take a prudent approach to risk taking. It stated “We firmly believe
that these qualities will enable us to continue to perform strongly.”
Plaintiffs allege that these statements were misleading because they
failed to disclose and were inconsistent with the poor quality RMBS and
CDO assets that it was structuring and selling. (Id. ¶ 145.)
13
6. On a conference call relating to the second quarter 2007 earnings,
defendant Di Iorio stated that any sub-prime exposure that Deutsche
Bank had at that time was relatively flat and that before it made any
commitments, it went through a very thorough credit review. Plaintiffs
allege that these statements were misleading because they failed to
disclose and were inconsistent with the poor quality RMBS and CDO
assets that it was structuring and selling. (Id. ¶ 146.)
7. On September 4, 2007, Ackerman of Deutsche Bank made a presentation
that stated that the bank “is not exposed to further deterioration in the
US sub-prime mortgages across its books” and “exposure to US mortgage
originators [is] tightly managed and largely hedged.” He repeated these
statements in presentations on September 10-14, 2007; Bänziger made a
presentation on September 12, 2007 in which he made substantially the
same statements. Plaintiffs allege that these statements were misleading
because they failed to disclose and were inconsistent with the poor quality
RMBS and CDO assets that it was structuring and selling. (Id. ¶¶ 14750.)
8. In February 7, 2008, Ackerman, Chairman of Deutsche Bank’s
Management Board, stated that “in the fourth quarter we again
demonstrated the quality of our risk management. We had no net writedowns related to sub-prime, CDO or RMBS exposures.” Bänziger also
touted the high quality of Deutsche Bank’s loans and its high
14
underwriting standards. Di Iorio also referred to strong risk management
as supporting its results. Plaintiffs allege that these statements were
misleading because they failed to disclose and were inconsistent with the
poor quality RMBS and CDO assets that it was structuring and selling.
(Id. ¶¶ 153-55.)
9. On March 26, 2008, Deutsche Bank filed it Form 20-F for its 4Q07 and
FY07 results and stated: “We manage credit, market, liquidity,
operational, business, legal and reputational risks as well as our capital in
a coordinated manner at all relevant levels within our organization. This
also holds true for complex products . . . .” (Id. ¶ 156.) Plaintiffs allege
that this Form 20-F concealed MortgageIT’s violations of origination
standards and the poor quality of mortgages and mortgage-backed assets.
(Id. ¶ 158.)
10. On April 1, 2008, Ackerman participated in a conference in which he
assured investors that all CDOs were marked-to-market; the same
presentation stated that Deutsche Bank’s RMBS business was
predominately AAA-rated securities based on Alt-A collateral. According
to plaintiffs, these statements were false and misleading since defendants
knew that the assets were not properly marked-to-market and that the
credit ratings were inaccurate or outdated. (Id. ¶ 159.)
Later in April 2008, Deutsche Bank announced its first quarter 2008 results.
In its press release, it announced its first loss in five years, headcount reductions
15
and attempts to reduce risk exposure. (Id. ¶ 163.) On July 31, 2008, Deutsche
Bank released its second quarter 2008 results, including a second loss and a $3.6
billion write-down of the value of RMBS. (Id. ¶ 164.) Over the course of the next
few months, Deutsche Bank experienced additional losses, financial difficulties and
took additional write-downs that it attributed in part to sub-prime and RMBSrelated losses. (Id. ¶¶ 167-69.) In December 2008, just under two years after its
acquisition, Deutsche Bank decided to close MortgageIT. (Id. ¶ 171.) Throughout
this period, Deutsche Bank’s stock was declining — from a class period high of
$159.59 to $21.27 on January 20, 2009. (Id. ¶ 173.)
Plaintiffs have brought this suit against Deutsche Bank along with four
individual defendants: Ackermann, CEO, Chairman of the Management Board and
Chairman of the Group Executive Committee, at all relevant times; Börsig,
Chairman of the Supervisory Board at all relevant times; Bänziger, a member of the
Management Board, Chief Risk Officer and member of the Group Executive
Committee, at all relevant times, and Di Iorio, a member of the Management Board,
Chief Financial Officer, and a member of the Group Executive Committee, at all
relevant times. (Id. ¶¶ 19-22.) Plaintiffs assert two causes of action: a claim for
violation of Section 10(b) of the 1934 Act and Rule 10b-5 against all defendants
(Count I), and a claim for violation of Section 20(a) of the 1934 Act against all
defendants (Count II.)
16
II.
LEGAL STANDARD FOR A 12(b)(6) MOTION
On a motion to dismiss, this Court accepts as true all well-pleaded factual
allegations, Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009), and draws all reasonable
inferences in plaintiffs’ favor. See Famous Horse Inc. v. 5th Ave. Photo Inc., 624
F.3d 106, 108 (2d Cir. 2010). To withstand a motion to dismiss, “a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). “Threadbare recitals of the elements of a cause
of action, supported by mere conclusory statements, do not suffice.” Id. Thus, while
“Rule 8 marks a notable and generous departure from hyper-technical, codepleading regime of a prior era, [ ] it does not unlock the doors of discovery for a
plaintiff armed with nothing more than conclusions.” Id. at 678-79. “[W]here the
well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged — but it has not shown — that the pleader is
entitled to relief.” Id. (internal punctuation omitted); see also Fed. R. Civ. P. 8(a)(2).
III.
LEGAL STANDARD FOR 10(b) CLAIMS
Most claims for violations of Section 10(b) of the 1934 Act are based upon
alleged material misstatements or omissions upon which plaintiffs relied in
connection with securities transactions. That, in effect, is the classic case.
However, the reach of Section 10b is not so limited. Though much less frequently
pled in this manner, plaintiffs may bring claims that a particular scheme, or course
of conduct was itself fraudulent. See 15 U.S.C. § 78j(b); 17 C.F.R. 240.10b-5(a)-(c).
17
This effectively allows plaintiffs to allege a fraudulent scheme without being
tethered to whether specific statements were themselves material misstatements or
omissions; such statements may simply be part of the fabric of the fraudulent
scheme alleged.
Here, plaintiffs have clearly alleged both a scheme to defraud and particular
misstatements and omissions. (See, e.g., Am. Compl. ¶¶ 3, 12, 24, 139-159, 184.) To
state a claim under Rule 10b-5, plaintiffs must plead plausible facts that defendants
employed a device, scheme and artifice to defraud, or that defendants made untrue
statements of material fact or omitted to state material facts necessary in order to
make the statements made, in light of the circumstances in which they were made,
not misleading, or engaged in acts, practices and a course of business that operated
as a fraud or deceit upon plaintiffs in connection with their purchase of securities.
17 C.F.R. § 240.10b-5.
Understanding the breadth of the 10(b) statutory scheme is of particular
relevance when arguments are made that isolated statements may or may not
themselves be actionable. Alleging a fraudulent scheme has significant legal
relevance to whether claims withstand initial scrutiny as to individual defendants
who may not be alleged to have “made” actionable misstatements, but may
nonetheless be alleged to be “actors” in a scheme. In this regard, whether a claim
has been properly pled as to an individual may be based either on plausible facts
that he “made” a misstatement or that he participated in a fraudulent scheme.
18
Under either scenario, to state any type of 10(b) claim, a plaintiff must allege
plausible facts suggesting that the actionable misconduct was made with requisite
scienter. See In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 491 (S.D.N.Y. 2005).
The Private Securities Litigation Reform Act (“PSLRA”) requires that claims must
“state with particularity facts giving rise to a strong inference that the defendant
acted with the requisite state of mind.” 15 U.S.C. § 78u-4(b)(2). The required state
of mind is an intent to deceive, manipulate or defraud. See Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 193 n.12 (1976); Ganino v. Citizens Utilities Co., 228 F.3d
154, 168 (2d Cir. 2000); In re Parmalat, 376 F. Supp. 2d at 491.
a. Misstatement or Omission
Here, plaintiffs assert both actionable misstatements/omissions and a
scheme. To find that a 10b-5 claim has been stated based upon an actionable
misstatement or omission, plaintiffs must allege as to each defendant plausible
facts that: (1) the particular defendant made a misstatement or omission of material
fact 3 (or in the case of an omission, failed to make a required statement); (2) that
the particular defendant did so with the requisite scienter — or culpable state of
mind; (3) that one or more plaintiffs relied upon such misstatement or omission, (4)
in connection with a U.S. securities transaction, (5) and that such reliance was the
proximate cause of a plaintiff’s loss. 4 See Lentell v. Merrill Lynch & Co., 396 F.3d
In Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296, 2302 (2011), the Supreme
Court stated that for Rule 10b-5, the “maker” of a statement is the person or entity with ultimate
control over the statement, including its content and whether and how to communicate it.
4 Defendants do not challenge the reliance element of the 10b-5 claim outside the context of
materiality, and, accordingly, the Court will not discuss it outside that context.
3
19
161, 172 (2d Cir. 2005); In re IBM Sec. Litig., 163 F.3d 102, 106 (2d Cir. 1998); In re
Parmalat, 376 F. Supp. 2d 472, 491 (S.D.N.Y. 2005).
Claims of actionable misstatements or omissions sound in fraud. As a result,
to pass muster, allegations supporting such claims must meet the requirements of
both Rule 9(b) of the Federal Rules for Civil Procedure and the PSLRA. See Novak
v. Kasaks, 216 F.3d 300, 306 (2d Cir. 2000); Shields v. Citytrust Bancorp, Inc., 25
F.3d 1124, 1128 (2d Cir. 1994). This pleading standard requires that a plaintiff
state with particularity, as to each defendant, (1) the particular statement that the
plaintiff asserts were fraudulent, (2) the maker of the statement(s), (3) where and
when the statement was made, and (4) why the statement(s) was fraudulent. 15
U.S.C. § 78u-4(b)(1); see also Novak, 216 F.3d at 306; In re Parmalat, 376 F. Supp.
at 491.
b. Materiality
An actionable misstatement is not simply one that is false or incomplete;
there must be a substantial likelihood that a reasonable person would consider the
fact misstated or omitted important in connection with a contemplated securities
transaction. See Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988); Azrielli v. Cohen
Law Offices, 21 F.3d 512, 518 (2d Cir. 1994); In re Espeed, Inc., Sec. Litig., 457 F.
Supp. 2d 266, 279 (S.D.N.Y. 2006).
The question of materiality is often fact specific; but certain types of
statements have been found immaterial as a matter of law. In a number of cases,
“rosy affirmations” or statements that are loosely optimistic regarding a company’s
20
well-being have been found to be too vague and general to be actionable. See, e.g.,
Novak, 216 F.3d at 315; (“[S]tatements containing simple economic projections,
expressions of optimism, and other puffery are insufficient . . . .”); Rombach, 355
F.3d 164, 174 (2d Cir. 2004) (unfocused expressions of puffery and corporate
optimism not actionable); but see Freudenberg v. E*Trade Fin. Corp., 712 F. Supp.
2d 171, 184-85, 191 (S.D.N.Y. 2010) (declining to dismiss on materiality grounds
defendants’ alleged statements that (1) loans met “extremely conservative lending
standards” when they did not and (2) defendants maintained a “disciplined focus”
when there was claimed to be a “glaring disparity” between statements and
operations); In re CIT Grp. Inc. Sec. Litig., 08 Civ. 6613, 2010 WL 2365846, at *3
(S.D.N.Y. June 10, 2010) (citing In re Ambac Fin. Grp., Inc. Sec. Litig., 693 F. Supp.
2d 241, 271 (S.D.N.Y. 2010)) (holding defendants’ representations of conservative
lending standards to be actionable in light of their failure to disclose the lowering of
those standards).
Many types of forward looking projections surrounded by adequate
cautionary language have also been deemed not actionable as a matter of law. See,
e.g., Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002). The law
on such optimistic statements surrounded by cautionary language has developed
into what is known as the “bespeaks caution” doctrine. This doctrine is limited to
forward looking statements and does not apply to historical or present facts. See P.
Stolz Family P’ship v. Daum, 355 F.3d 92, 96-97 (2d Cir. 2004). If defendants assert
that cautionary language renders a forward looking statement not actionable, the
21
Court will examine whether that language addressed the specific contingency at the
core of the alleged misrepresentation. See id. at 118. Where the cautionary
language is adequate, a reasonable investor would not be deemed to consider the
statement material.
In City of Omaha, upon which defendants here place heavy reliance,
plaintiffs’ allegations spanned seventy-seven pages and contained numerous
allegations that revenue and asset value was overstated. See City of Omaha v. CBS
Corp., 679 F.3d 64, 66 (2012). Following a public announcement by CBS that it
would conduct an impairment test, its stock fell and it was sued for securities fraud
in connection with its prior statements. The Second Circuit held that the alleged
misstatements were not of material fact, but rather of opinion. Id. at 67-68. The
Court found that the allegations were of general deterioration in financial condition
but that this did not “mandate[]” that impairment testing be performed at the
particular time plaintiffs asserted. Id. at 68. The Court found that the complaint
contained only conclusory allegations that defendants had knowledge of events or
circumstances which would have mandated such testing. Id. Further, the Court
found that the complaint was devoid of anything more than conclusory allegations
that plaintiffs did not believe in the optimistic views and business outlook
expressed. Id. Plaintiffs there conceded at oral argument that all of the alleged
“red flags” were public knowledge. Id. at 69. Accordingly, the market price could
not have been inflated; and there could not have been actionable reliance on a
fraudulently inflated stock price. Id.
22
Both City of Omaha, and the Second Circuit’s earlier ruling in Fait v. Regions
Financial Corp., 655 F.3d 105 (2d Cir. 2011), have been interpreted as affirming
that estimates of loan loss reserves and good will are statements of opinion and not
fact; and that for valuation type statements to be actionable, there must be some
allegation that the maker of the statement did not believe the statement at the time
it was made. See In re Deutsche Bank AG Sec. Litig., No. 09 Civ. 1714, 2012 WL
3297730, at *1 (S.D.N.Y. Aug. 10, 2012); In re Gen. Elec. Co. Sec. Litig., 856 F.
Supp. 2d 645, 653 (S.D.N.Y. 2012) (referring to Fait for the proposition that for a
statement of belief or opinion to give rise to liability it must be both objectively false
and disbelieved at the time it was made).
c. Fraudulent or Deceptive Schemes
To state a claim that a defendant has engaged in a fraudulent or deceptive
scheme in violation of Rule 10b-5(a) and (c), a plaintiff must allege a defendant (1)
committed a deceptive or manipulative act, (2) with the requisite scienter, (3) that
the act affected the market for securities or was otherwise in connection with their
purchase or sale, and that (4) defendant’s actions caused the plaintiff’s injuries. See
In re Parmalat, 376 F. Supp. 2d at 492; In re Global Crossing Ltd. Sec. Litig., 322 F.
Supp. 2d 319, 329 (S.D.N.Y. 2004); In re Initial Public Offering Sec. Litig., 241 F.
Supp. 2d 281, 385 (S.D.N.Y. 2003).
Unlike actionable misstatements or omissions, claims that liability is
premised on a fraudulent or deceptive scheme do not require compliance with the
PSLRA’s pleading requirements. See e.g. In re Parmalat, 376 F. Supp. 2d at 492;
23
see also Shields, 25 F.3d at 1128. Such claims do sound in fraud, however, and
plaintiffs must meet the strict pleading requirements of Rule 9(b). Id. To meet the
Rule 9(b) requirements for a claim of market manipulation, a plaintiff must allege
specific facts regarding what manipulative acts were performed, which defendant(s)
performed them, when they were performed, and what the effect of the alleged
scheme was on the securities. See Global Crossing, 322 F. Supp. 2d at 329; In re
Blech Sec. Litig., 961 F. Supp. 569, 580 (S.D.N.Y. 1997). One can be held liable in
connection with such a scheme even if he did not himself make a material
misstatement in connection with it. See, e.g., In re Parmalat, 376 F. Supp. 2d at
502; In re Lernout & Hauspie Sec. Litig., 236 F. Supp. 2d 161 (D. Mass. 2003).
d. Scienter
Scienter is the mental state embracing an intent to deceive, manipulate or
defraud. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319, 323
(2007). When deciding a motion pursuant to Rule 12(b)(6), a court must decide
whether all facts taken together — that is, collectively — give rise to a strong
inference of scienter. Id. at 323. This is not whether any individualized statement
in isolation meets that standard. Id.
Facts giving rise to a strong inference of scienter can be alleged by pleading
(1) motive and opportunity to commit the fraud, or (2) strong circumstantial
evidence of conscious misbehavior or recklessness. Kalnit v. Eichler, 264 F.3d 131,
138 (2d Cir. 2001); accord Novak, 216 F.3d at 311. Motive and opportunity require
plausible allegations of concrete benefits that could be realized by the
24
misstatement, and the likely prospect of achieving such benefits. See Shields, 25
F.3d at 1130. Allegations limited to the type of “corporate profit” motive possessed
by most corporate directors and officers do not suffice. See Kalnit, 264 F.3d at 139.
Assertions of conscious misbehavior or recklessness can satisfy the scienter
requirement. Conscious misbehavior generally consists of deliberate, illegal
behavior. Novak, 216 F.3d at 308. Recklessness requires allegations that a
defendant’s conduct was highly unreasonable and constituted an extreme departure
from the standards of ordinary care to the extent that the danger was either known
to the defendant or so obvious that the defendant must have been aware of it. See
Rothman, 220 F.3d at 90; Novak 216 F.3d at 308; Chill v. Gen. Elec. Co., 101 F.3d
263, 269 (2d Cir. 1996) (recklessness can be found in instances of egregious refusal
to see the obvious or investigate the doubtful). Plausible allegations that a
defendant had facts at his disposal contradicting material public statements, but
ignored such facts or proceeded despite them, can be sufficient to plead
recklessness. See Novak, 216 F.3d at 308; see also Teamsters Local 445 Freight
Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 196-97 (2d Cir. 2008)
(“Where plaintiffs contend defendants had access to contrary facts, they must
specifically identify the reports or statements containing this information.”).
“The Second Circuit has explicitly recognized that plaintiffs may rel[y] on
post-class period [statements] to confirm what a defendant should have known
during the class period.” Lapin v. Goldman Sachs Grp., Inc., 506 F. Supp. 2d 221,
237 (S.D.N.Y. 2006); Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d at 183-84;
25
see also In re Vivendi Universal, S.A. Sec. Litig., 381 F. Supp. 158, 181 (S.D.N.Y.
2003) (post-class period articles can be used to establish awareness of falsity of class
period statements because the opposite result would reward defendant for
successful concealment). Allegations in a complaint, including knowledge which the
defendants knew or should have known, should be viewed together. See
Freudenberg, 712 F. Supp. 2d at 197-98. In Freudenberg, allegations of scienter
were based, in part, on claims that management had been specifically informed of
certain deficiencies in pricing and loan losses. Id. at 198-99. (There, among the
findings, but not essential to the court’s decision, was that defendants has also
engaged in stock sales. Id. at 200.)
In the context of a 12(b)(6) motion, a court must balance reasonable
inferences favoring the plaintiffs against those favoring a particular defendant. See
Tellabs, 551 U.S. at 323-24.
e. Causation
Pleading loss causation is an essential element of a claim — but is not meant
to impose a great burden on plaintiffs. See Dura Pharm., Inc. v. Broudo, 544 U.S.
336, 346 (2005). There is no heightened standard for pleading loss causation. See
In re Bristol Myers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148, 163 (S.D.N.Y. 2008).
A short, plain statement that provides defendants with notice of the loss and some
notion of the causal connection to the alleged misconduct is sufficient. Dura, 544
U.S. at 346-47. To accomplish this, plaintiffs must assert that they relied upon a
scheme, or a defendant’s alleged misstatement/omission, in connection with a
26
securities transaction and that such reliance caused at least part of their losses.
See Castellano v. Young & Rubicam, Inc., 257 F.3d 171, 179 (2d Cir. 2001).
IV.
LEGAL STANDARD FOR CONTROL PERSON LIABILITY
Section 20(a) of the 1934 Act imposes liability on “control persons.” Although
a defendant may not be held liable both for a primary violation of the 1934 Act
under Section 10(b) as well as a violation pursuant to Section 20(a), alternative
theories are allowed at the pleading stage. Police & Fire Ret. Sys. of Detroit v.
SafeNet, Inc., 645 F. Supp. 2d 210, 241 (S.D.N.Y. 2009).
Section 20(a) provides:
Every person who, directly or indirectly, controls any person liable
under any provision of this chapter or any rule or regulation
thereunder shall also be liable jointly and severally with and to the
same extent as such controlled person to any person to whom such
controlled person is liable, unless the controlling person acted in
good faith and did not directly or indirectly induce the act or acts
constituting the violation or cause of action.
15 U.S.C. § 78t(a). To sustain a claim of control person liability under Section 20(a),
plaintiffs must allege plausible facts that (1) there was a primary violation by a
controlled person, (2) the defendant controlled the primary violator, (3) the
defendant who is alleged to be the controlling person was, in some sense, a culpable
participant in the controlled person’s fraud. See ATSI Commc’ns, Inc. v. Shaar
Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007). Thus, plaintiffs must allege sufficient
plausible facts of a controlling person’s misbehavior or recklessness. In re CIT Grp.
Sec. Litig., 2010 WL 2365846, at * 5.
27
V.
DISCUSSION
a. Deutsche Bank
Plaintiffs allege that defendants engaged in a scheme to defraud investors by
increasing short term revenues and inflating Deutsche Bank’s stock price by taking
mortgages of substandard quality and pooling them into RMBS and CDOs. Those
RMBS and CDOs were then sold to investors — generating short term profits,
which, in turn, made the stock more attractive. Plaintiffs allege that defendants
had specific knowledge of the poor quality of the mortgages underlying the RMBS
and CDOs — and that they demonstrated this knowledge by authorizing Lippmann
to take and expand a multi-billion dollar short position on RMBS and CDOs (some
number of which were structured and sold by Deutsche Bank). This short position
only made sense — and only made money — as the value of the RMBS and CDOs
declined. According to plaintiffs, defendants asked Lippmann to provide specific
information supporting this short position (that is, why he expected CDOs to decline
in value), and such information was provided. In addition, plaintiffs allege that
despite knowing that MortgageIT was engaged in poor lending practices (which
were packaged into RMBS and CDOs) they nonetheless repeatedly reassured
investors that their credit and lending practices were conservative and being
adhered to. According to plaintiffs, investors were misled by the scheme, misled by
the specific misstatements and omissions, relied upon the total picture presented to
them, and engaged in purchases of Deutsche Bank securities, causing loss.
28
Plaintiffs have certainly set forth sufficient plausible allegations to support a
claim for a fraudulent scheme against Deutsche Bank. The scheme is laid out with
specificity. There is no doubt that the scheme related to material aspects of the
bank’s operations. Scienter is adequately pled by multiple references to information
available to senior management, specific questions asked by, and presentations
made to senior management, all of which contradicted the public-facing statements
regarding the value of CDOs Deutsche Bank continued to structure, price and
market as the walls closed in. At the very least, the fact that information existed
and was presented disproving the validity of the public statements made by
Deutsche Bank supports plausible allegations of recklessness.
Defendants argue that the alleged misstatements and omissions are merely
non actionable statements of opinion — akin to the situations discussed in Fait and
City of Omaha. This Court disagrees.
Here, plaintiffs allege that, at very time the market was beginning to
experience the early effects of the sub-prime implosion, Deutsche Bank made
statements that it had acted conservatively with respect to risk and that it had
adhered to conservative lending standards. Plaintiffs allege that at the time of
these statements, the same individuals who had made the statements had been
provided information indicating the opposite. These allegations present different
facts from those in City of Omaha or Fait — and present facts supportive of both
objective and subjective falsity. Whether or not discovery will prove or disprove
29
these allegations is not for this Court at this time. This action may proceed as
against Deutsche Bank.
b. The Individual Defendants
This Court is required to analyze each defendant separately — to determine
whether there are sufficient plausible allegations to support the two causes of action
as to a defendant. Here, plaintiffs have alleged that four individuals are liable for
violations of Sections 10(b) and 20(a) of the 1934 Act.
First, the Court asks whether there each defendant is alleged to have been
engaged in a fraudulent scheme, and/or to have made a material misstatement or
omission. Defendants correctly point out that defendant Börsig is not alleged to
have actually made a single misstatement. The others are alleged to have made or
participated in making misstatements (for instance, Ackermann is alleged to have
made statements referred to in paragraphs 145, 147, 148, 152, 153, 159, 164 of the
Amended Complaint; Di Iorio is alleged to have made statements referred to in
paragraphs 143, 146, 155; Bänziger is alleged to have made the statement referred
to in paragraphs 144, 149, 154). Defendant Börsig’s name is not specifically
mentioned in connection with particular misstatements and omissions, but he is
alleged to have been Chairman of the Supervisory Board of Deutsche Bank at all
relevant times. However, there are no specific allegations regarding the
involvement of the Supervisory Board in making any of the alleged misstatements.
As a result, there are sufficient allegations of material misstatements against only
three of the four defendants: Ackerman, Bänziger and Di Iorio.
30
The Court then asks whether there are sufficient allegations to support a
claim that Börsig and the other defendants participated in an unlawful scheme.
Here, the fact that three of the four defendants are alleged to have made statements
in furtherance of the scheme — and that the statements were part of the scheme —
is sufficient as to them. In addition, the same three individual defendants are
alleged to be on both the Deutsche Bank Management Board and to be part of its
Group Executive Committee. (See, e.g., Am. Compl. ¶¶ 19, 21, 22, ECF No. 23). In
addition, Lippmann is alleged to have met with some members of the Executive
Committee to get authorization for his short position. (Id. ¶¶ 38, 39.) Börsig’s
involvement is derivative — and based on his position as Chairman of the
Supervisory Board. In paragraph 141, the Amended Complaint refers to the
conclusory statement in the March 27, 2007, Form 20-F that the “Management
Board provides overall risk and capital management supervision . . . [, and the]
Supervisory Board regularly monitors our risk and capital profile.” (Id. ¶ 141.) A
similar statement is made the following year. (Id. ¶ 156.) These allegations are
insufficient to support a claim that Börsig — not alleged to have made any
statements — can be liable as a participant in a fraudulent scheme. There are no
specific allegations that, apart from misstatements, the Supervisory Board played
any real role in the scheme itself. As to Börsig, there is “no there there,” and on this
basis, the claims against Börsig fail and are dismissed.
The Court next inquires as to whether there are sufficient allegations of
scienter as to the three remaining individual defendants — and finds that there are.
31
There are allegations, referred to above, in which Deutsche Bank is alleged to be
engaged in originating mortgages, structuring and selling RMBS and CDOs —
while at the same time knowing that these assets were far riskier than an investor
might reasonably suppose. There are specific allegations that Lippmann made
presentations to the Executive Committee, of which these three individuals were
members, that supported his view that a multi-billion dollar bet against CDOs was
appropriate. Such allegations of specific information, that contradicted these same
individual’s public statements, support a strong inference of scienter. Those same
allegations support an inference that these statements were both objectively false
when they were made, and made with sufficient knowledge or reckless as to meet a
requirement for subjective falsity as well.5
Plaintiffs adequately allege causation. Their complaint includes statements
taken from Deutsche Bank’s own 2008 Annual Report attributing net losses in part
to “mark-downs relating to . . . provisions against residential mortgage-backed
securities.” (Id. ¶ 174.) It also alleges a total of $4.5 billion in residential
mortgage–related losses in 2007 and 2008, which, plaintiffs argue, contributed to an
eighty-six percent decline in the share price of Deutsche Bank’s stock. (Id. ¶¶ 18081.) These allegations give defendants ample notice of the causal connection alleged
between the fraudulent conduct and economic loss upon which plaintiffs sue.
Defendants urge that the fact that the Amended Complaint concedes that Deutsche Bank
maintained a long position means that there could not be scienter. This Court disagrees. That
people can bet in different directions does not mean that they necessarily disbelieve one position in
favor or another; it simply means they are gamblers unwilling to place their entire bet on red, versus
black. The Amended Complaint plausibly suggests that they assured investors that their bets were
in one direction — and omitted that they had taken bets in both directions.
5
32
c. Section 20(a): Control Person Liability
Plaintiffs also adequately plead a claim pursuant to Section 20(a) for control
person liability. The Amended Complaint contains sufficient allegations to support
a claim for a primary violation as to Deutsche Bank and the three individual
defendants. In addition, there are a number of specific allegations that these
individuals were sufficiently direct participants in the alleged scheme, and in the
management groups that allegedly participated in the scheme, to support control.
For instance, each of three individuals was of the Executive Committee and
Management Board; in addition, each held a significant and directly relevant
management position: CEO (Ackermann), CFO (Di Iorio), and Chief Risk Officer
(Bänziger). The Section 20(a) claim has been adequately pled.
VI.
CONCLUSION
For the reasons set forth above, defendants’ motion to dismiss the Amended
Complaint is DENIED as to defendant Deutsche Bank and defendants Ackermann,
Bänziger and Di Iorio. It is GRANTED with respect to Börsig.
The PSLRA stay of discovery is hereby lifted. In light of the length of time
that has already passed, the parties are encouraged immediately to commence
appropriate discovery.
The Court will hold an initial pre-trial conference on April 16, 2013, at 1:00
p.m. The parties should refer to the Court’s individual rules regarding matters to
be addressed prior to and at that conference.
33
The Clerk of Court is directed to terminate the motion at ECF No. 24.
Dated:
New York, New York
March 27, 2013
_______________________________
Katherine B. Forrest
United States District Judge
34
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