C.D.T.S. No. 1 and A.T.U. Local 1321 Pension Plan v. UBS AG et al
Filing
51
OPINION & ORDER re: 47 MOTION to Dismiss / Notice of Motion to Dismiss Plaintiffs' First Amended Consolidated Complaint filed by Philip J. Lofts, John Cryan, Oswald J. Grubel, Carsten Kengeter, UBS AG. For the reasons set forth above, defendants' motion to dismiss is GRANTED. The Clerk of Court is directed to close the motion at ECF No. 47 and to terminate this action. (Signed by Judge Katherine B. Forrest on 12/13/2013 (as per Chambers)) (mro)
.:tJSDC SONY
.OOCU~ENT
..ELECTRONICALLY FILED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
.DOC #:_ _"".1"""'J'I:--:--::---
:DI\TEJt1LED:DEC.
•
C.D.T.S. NO.1 & A.T.U. LOCAL 1321
PENSION PLAN, Individually and on
Behalf of All Others Similarly Situated,
_,
,r,"
13 2Qj3 .
_,
•
12 Civ. 4924 (KBF)
Plaintiffs,
OPINION & ORDER
-v-
UBS AG, et al.,
Defendants.
------------------------------------------------------------ lC
KATHERINE B. FORREST, District Judge:
Over the past several years, it has been ever so easy to make banks the
target of lawsuits alleging securities fraud: what banks said, how those statements
failed to match up to what happened, and who did or should have known. One
might think of the tired but appropriate phrase "shooting fish in a barrel." But the
securities laws have limits; and it is the responsibility of the courts to ensure that
those limits are enforced, and that lawsuits which cannot withstand the most basic
scrutiny find their way into whatever great beyond awaits suits dismissed for
failure to state a claim.
The securities laws do not, for instance, require that banks be prescient or
omniscient; they do require, inter alia, that a company and officers or directors
accused of fraud have the requisite state of mind; they do require that the maker of
statements alleged to be false knew of the falsity at the time.
This is a lawsuit which essentially asserts that statements regarding risk
controls must have been false because they occurred while a rogue trader racked up
1
"!"--.:.4
a massive loss; this lawsuit fails to meet the basic requirements for stating a claim.
This case is, therefore, dismissed. 1
1.
fACTUAL ALLEGATIONS
In the context of a motion to dismiss, this Court accepts as true all well-pled
factual allegations.
UBS AG CUBS"), and Oswald J. GrUbel (CEO of UBS from February 26,
2009 to September 24, 2011), John Cryan (CFO of UBS from September 2008 until
May 31,2011; also Chairman and CEO ofUBS London Brand and UBS Limited
from November 2010 through May 31,2011), Philip J. Lofts (the Chief Risk Officer
of UBS from November 2008 through December 31,2010), and Carsten Kengeter
(the co-CEO of UBS Investment Bank from April 27,2009 until November 1, 2010,
when he became the sole head of the Investment Bank) (referred to together as the
"Individual Defendants"), are alleged to have violated the Securities and Exchange
Act of 1934 during the period from November 17, 2009 through September 15, 2011.
(Am. CompI.
'1'1
2, 12-15, March 4,2013, ECF No. 46.)
Plaintiffs' assertions of fraud are based on a series of alleged material
misstatements and omissions "regarding UBS's purportedly robust risk
management systems and internal controls." (ld.,J 4.) Plaintiffs have selected a
Plaintiffs have also asserted a claim pursuant to Section 20 of the 1934 Act. A
Section 20 claim requires an underlying securities law violation. SEC v. First
Jersey Sees., Inc., 101 F. 3d 1450, 1472 (2d Cir. 1996). Plaintiffs' failure to state a
10b-5 claim thel'efore l'eq uires dismissal of their Section 20 claim. Id. In assessing
the adequacy of such allegations, the Court is required to consider whether
competing inferences may equally explain the conduct. Cherry Street, LLC v.
Hennessee Group LLC, 573 F. 3d 98, 111 (2d Cir. 20(9).
I
2
number of statements which, in various ways, describe DBS as taking a "more
cautious approach" to tl'ading and risk management and as having effective controls
in place. (Id.)
For instance, plaintiffs assert that on November 17, 2009, the first day of the
class period, defendants "began a campaign to highlight [their] purportedly
disciplined and effective risk management and control systems ...." (Id.'l 25.) For
example, Lofts allegedly stated "that one of the 'key messages' investors should take
away from a presentation" at DBS's Investor Day in Zurich, Switzerland was "that
we have made significant improvements in the way in which we measure and
manage risk care at DBS. \Ve have instilled a new risk culture at the firm." (Id.,r
25.) Lofts is also alleged to have said that "there is robust supervision of trade
capture and valuation" and that "the nature and size of the risk that we take is one
of the core discussion topics among senior management." (Id.,r 26.)
Additional alleged misstatements include that "there is a new risk culture at
the bank"
~
,r 27)2 and "we ... have a controlled and disciplined risk culture" (id.
,: 28).:1 On other occasions, Grubel stated that "we have weekly risk calls ... where
we go through our risk position in the old bank weekly ...." (ld.'1 29.) In its 2009
Annual Report, signed by Grube!, and reviewed by Cryan, Lofts and Kengeter, DBS
states: "Our operational risk management and control systems and processes are
designed to help ensure that the risks associated with our activities ... are
This statement was allegedly made by Alexander \Vilmot-Sitwell, as co-CEO of
DBS's Investment Bank, while speaking at the annual Investor Day conference.
(Am. CompI. ,~ 27.) Wilmot-Sitwell is not a defendant in this action.
:3 This statement was allegedly made by defendant Kengeter.
2
3
appropriately controlled." (ld.,r 35.) In other filings with the Securities and
Exchange Commission, management reported that UBS's internal control over
financial reporting was effective. (Id.
~i
36.) In November 2010, the Individual
Defendants spoke at an investor conference. Lofts stated that "senior management
are aware of all material risks" and Kengeter stated "(e]verything we do is tied to
risk management." (Id.
~I~f
45-46.)
Plaintiffs allege that these statements are appropriately contrasted with,
inter alia, defendants' failure to integrate risk assessment into UBS's compensation
fi'amework
ful
~
56(a»,'1 incentivized high risk trading
ful ~r 56(b», had insufficient
risk controls in various areas (id. ,r 56(c)-(j», permitted individual traders to
maintain "umbrella" or "suspense" accounts (id. Cj 56(k», 5 and failed to robustly
supervise risk (id.
~f
56(n».G
According to plaintiffs, the falsity of these statements was revealed on
September 15, 2011, when UBS disclosed that a "'rogue' trader in the Investment
Bank division had engaged in unhedged proprietary trades with non-existent
counterparties that exposed rUBS] to losses that ultimately exceeded $2.3 billion."
1 Plaintiffs argue that defendants have instead "incentivized Investment Bank
traders and management to engage in high risk transactions to generate earnings
for the Company, including tying compensation and promotions to earnings
generated through proprietary trading activity." (Am. CompI. ,r 56(a).)
;) According to plaintiffs, these accounts allowed profits made by a trading desk to be
held in order to "offset and hide future trading losses and activity which exposed
CBS to trading losses." (Am. CompI. ~I 56(k).)
(; Plaintiffs allege that "defendants had reduced costs and increased reported
earnings by laying off predominantly 'Back Office' staff involved in internal controls
and risk management, even while hiring additional 'Front Office' personnel and
increasing UBS's value at risk in Investment Bank trading." (Am. Compl. ~ 56(n).)
4
(Id.
,r 5.)7
Plaintiffs contend that this incident "forced to disclose that DBS's risk
and disclosure controls were inadequate and that unauthorized trading in excess of
risk limits in its Investment Bank" had occurred. (Id.'l 64.)
Finally, plaintiffs point to a series of media reports, investigations,
admissions, and settlements relating to this trading incident to illustrate the
purportedly inadequate controls that DBS had in place. (Id.
~'r
65-74.) On October
2011, UBS's interim CEO Sergio Ermotti 8 stated in an internal memo:
In no circumstances should something like this ever
occur. The fact that it did is evidence of a failure to
exercise appropriate controls. Our internal investigation
indicates that risks and operational systems did detect
unauthorized or unexplained activity but this was not
sufficiently investigated nor was appropriate action taken
to ensure existing controls were enforced.
(Id.
II.
,1 74; see also id. 'I~
75-79.)
MOTION TO DISMISS STANDARD
- ._--_.
--".-----~--
To survive a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to
'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 D.S. 662,
fi78 (2009) (quoting Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007». "A claim
has facial plausibility when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for tbe misconduct
alleged." llil:tal, 55fi D.S. at 678.
This revelation is alleged to have caused an immediate stock drop of more than
10%. (Am. CompI. 5.)
H Sergio Ermotti is not named as a defendant in this action.
7
'1
5
Presented with such a motion, a court must accept "all factual claims in the
complaint as true" and draws "all reasonable inferences in the plaintiffs favor."
Famous Horse, Inc. v. 5th Ave. Photo, Inc., 624 F.3d 106, 108 (2d Cir. 2010).
However, "[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 67B. If the court can
infer no more than "the mere possibility of misconduct" from the factual averments,
dismissal is appropriate. Starr v. SonyBMG Music Entm't, 592 F.3d 314,321 (2d
Cir. 2010).
In addition to meeting the pleading requirements pursuant to Rule 12(b)(6), a
complaint alleging a violation of Section 10(b) and Rule 10b-5 must also comply
with the requirements of Federal Rule of Civil Procedure 9(b), as well as the Private
Securities Litigation Reform Act of 1995 ("PSLRA"). See In re Alstom SA, 406 F.
Supp. 2d 433, 444-45 (S.D.N.Y. 2005).
Rule 9(b) requires that plaintiffs allege with particularity the circumstances
constituting the fraud. Fed. R. Civ. P. 9(b). The PSLRA requires both that
plaintiffs identify the alleged false statements and reasons why those alleged
statements are misleading, and that they allege sufficient facts to set forth a "strong
inference of scienter." See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
30B, 314 (2007) (explaining that Section 21D(b)(2) of the PSLRA requires that
plaintiffs '''state with particularity facts giving risk to a strong inference that the
defendant acted with the required state of mind"') (quoting 15 U.S.C. § 7Bu-4(b)(2».
6
III.
ANAJ.tYSIS
To state a claim pursuant to Section 10(b) or Rule 10b-5, plaintiffs must
adequately allege that in connection with the domestic purchase or sale of a
security, defendants made one or more materially false statements or omissions,
with scienter, and that these acts are causally related to plaintiffs' loss. See ECA,
Local 134 IBEW Joint Pension Trust of Chi. v. J.P. Morgan Chase Co., 553 F. 3d
187, 197 (2d Cir. 2009); Lawrence v. Cohn, 325 F. 3d 141, 147 (2d Cir. 2003)
(citations omitted).
Here, defendants assert that plaintiffs have failed adequately to allege the
falsity of a
statem(~nt
or omission, scienter, or loss causation. (Defs.' Mem. at 1-3,
Mar. 26, 2013, ECF No. 48.) The Court agrees.
a. Falsity
A violation of Rule 10b-5 cannot occur unless an alleged material
misstatement or omission was false at the time it was made. San Leandro
Emergencv Med. Grp. Profit Sharing Plan v. Philip Morris Cos., Inc., 75 F. 3d 801,
812-13 (2d Cir. 1996). A statement believed to be true when made, but later shown
to be false, is insufficient.
Id-'. Without contemporaneous falsity there simply is no
fraud. Id.; see also Novak v. Kasaks, 216 F. 3d 300, 306, 309 (2d Cir. 2000) (fraud
by hindsight is not actionable).
Falsity is a failure to be truthful
it is not a misapprehension,
misunderstanding, or mistake of fact at the time a statement was made. See San
Leandro, 75 F. 3d at 813 (explaining that "plaintiffs have not alleged circumstances
7
to show that the defendants lacked a reasonable basis for their optimistic, but
qualified predictions as to the company's future performance"); see also 15 U.s.C. §
78u-4(b)(1). That a statement true when made later becomes untrue - or is later
shown to be untrue - does not constitute falsity. San Leandro, 75 F.3d at 812-13.
To state a claim, plaintiffs must do more than assert in a conclusory fashion that
statements were or must have been false - they must allege facts supportive of how
and why this is the case. See Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004)
(explaining that to succeed on their claim, plaintiffs need to have done "more than
say that the statements in the press releases were false and misleading; they
[needed to have] demonstrate[d] with specificity why and how that [was] so").
In Roval Bank of Scotland Group PLC Securities Litigation, the court was
confronted with a situation similar to that here: plaintiffs challenged defendants'
disclosures of their internal controls as false and misleading. No. 09 Civ. 300, 2012
WL 3826261, at *8 (S.D.N.Y. Sept. 4, 2012). The court there found that such
statements were insufficient as a matter of law. Id. ("Plaintiffs fail to cite any
contemporaneous support to show that the credit management procedures were not
followed. Pointing to the subsequent subprime market collapse and alleging that
RBS must therefore have failed to follow its internal control procedures is not
sufficient.").
As set forth above, plaintiffs' allegations of false statements are simply a
litany of general statements regarding risk controls at UBS. (See, e.g., Am. CompI.
'1'[ 25-30, 34-40,43-48.)
A number of courts have rightly rejected this type of
8
"pleading by list." See Alcatel Sec. Litig., 382 F. Supp. 2d 513, 534-35 (S.D.N.Y.
20(5) (citing cases).
Here, each series of alleged misstatements are followed by a series of
conclusory statements; for example, that these statements had to have been false
and misleading because traders were incentivized to take high risks (Am. Compl.
,r
31(a)-(b», that there was a failure to monitor desk trading positions in any
automated manner (id.
~)
31(i», that risk supervision was not robust (!Q"
'1 31(n»,
and the like. The conclusory language contained the operative Complaint is
insufficient to support falsity. At most, the allegations are supportive of internal
management issues and competing incentives
a far cry from the speaker knowing
(or having reason to know) at the time that he was making an alleged statement
that the statement was in fact false. Put another way, a statement, even ifbased on
flimsy scaffolding, is false only if untrue.
Plaintiffs attempt to support falsity by pointing to two ex post facto reports,
filings, and statements criticizing UBS's risk controls. These are insufficient to
support an inference of falsity at the time the alleged statements were made.
First, all of the reports, filings, and statements are ex post. At most, the
reports, filings, and statements amount to a later realization that risk controls were
not catching certain conduct and could be improved upon.
Second, not a single one of the reports, filings, or subsequent statements is
directly tied to any particular alleged misstatements. None, for instance, refer to a
specific statement and say, in substance, "the prior statement or statements we
9
made we knew were wrong at the time." None provide sufficient information that
would allow this Court to draw such an inference even circumstantially.
b. Risk control statements as "puffery"
Statements which are "puffery" are not false. The type of statements
regarding internal controls to which plaintiffs point are akin to what courts have
held constitute inactionable puffery. See. e.g., ECA, Local 134 IBEW Joint Pension
Trust, 553
F.~3d
at 206 (explaining that the statements were inactionable because
they were "too general to cause a reasonable investor to rely on them"); In re UBS
AG Secs. Litig., No. 07 Civ. 11225, 2012 \VL 4471265, at *14 (S.D.N.Y. Sept. 28,
2012); Stratte-McClure v. Morgan Stanley, 784 F. Supp. 2d 373, 385 (S.D.N.Y.
2(11);
Jll 1'e Societe Generale Sees. Litig., No. 08 Civ. 2495, 2010 \VL 3910286, at *8
(S.D.N.Y. Sept. 2B, 2010); In re Australia & N.Z. Banking Grp. Ltd. Sees. Litig., No.
08 Civ. 11278, 2009 \VL 4823923, at *11-12 (S.D.N.Y. Dec. 14,2009).
At the time the statements regarding risk controls were made here, the
banking sector had experienced enormous losses. In such a context, touting good
risk controls is the equivalent of positive, aspirational puffery found inactionable by
courts. ECA & Local 134 IBEW Joint Pension Trust, 553 F.3d at 206; Rombach,
355 F.3d at 174 (reasoning that "companies must be permitted to operate with a
hopeful outlook ... plaintiffs must do more than say that the statements were false
and misleading; they must demonstrate with specificity how and why that is so.")
10
c. Scienter
Violations of Section 10(b) and Rule 10b-5 allege fraud
that is, an
intentional act to mislead. It is a serious accusation, necessarily impugning the
integrity of the accused party. See Rombach, 355 F.3d at 171 (the particularity
requirement of rule 9(b) serves to '''safeguard a defendant's reputation from
improvident charges of wrongdoing, and to protect a defendant against the
institution of a strike suit"') (citing O'Brien v. National Prop. Analysts Ptnrs., 936
F.2d 674, 676 (2d Cir. 1991».
Appropriately, the law therefore requires that a claim must be supported by
sufficient, particularized facts to give rise to a "strong" inference of scienter.
Tellabs, 551 U.S. at 314 (holding that "an inference of scienter must be more than
merely plausible or reasonable
it must be cogent and at least as compelling as any
oppmling inference of nonfraudulent intent"); ECA & Local 134 IBE\V Joint Pension
Trust, 553 F.3d at 198. SCIenter is an intent to '''deceive, manipulate, or defraud.'"
Tellabs, 5f>1 U.S. at 319 (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193-94
and n.12 (1976»; Ganino v. Citizens
Utils""~o.,
228 F.3d 154, 168 (2d Cir. 2000)
(citations omitted). Recklessness is a sufficiently culpable state of mind for
securities fraud. See ECA & Local 134 IBEvV Joint Pension Trust, 553 F.3d at 198.
Recklessness is defined as '''at the least ... an extreme departure from the
standards of ordinary care;'" that is, the danger was either known to the defendant
or so obvious that the defendant must have been aware of it. rd. (quoting Novak,
216 F.3d at 308-09).
11
A plaintiff can support an inference of scienter by alleging facts that a
defendant had motive and opportunity to commit a fraud, or by alleging sufficient
facts to support a strong circumstantial inference of conscious misbehavior or
recklessness. See Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001) (citing Acito v.
IMCERA Grp., Inc., 47 F.3d 47,52 (2d Cir. 1995». Sufficient motive allegations
require concrete benefits that could be obtained as a result of the fraud; motives of
most directors and officers for the corporation to appeal' profitable or simply to keep
the stock price high to increase compensation have been held insufficient. Kalnit,
264 F.3d at 139, 142; Novak, 216 F.3d at 307-08 (2d Cir. 2000).
Here, plaintiffs have sued a number of Individual Defendants along with
UBS. Scienter must be separately pled and individually supportable as to each
defendant; scienter is not amenable to group pleading. S.E.C. v. Espuelas, 579 F.
Supp. 2d 461,482 n.10 (S.D.N.Y. 2008) (citing In 1'e BISYS Sees. Litig., 397 F. Supp.
2d 430, 440 (S.D.N.Y. 2005».
As an initial matter, the operative Complaint fails to allege with any
specificity conscious wrongdoing by any defendant. In addition, there are no
allegations that would support improper motivation by any of the Individual
Defendants. There are a number of cases in which plaintiffs have sought to base
claims of fraud on statements regarding risk and internal control systems that later
prove not to deter
01'
catch trading losses; courts often dismiss such actions for a
failure adequately to plead scienter. See,
Ej~,
Chill v. General Elec. Co., 101 F.3d
263, 271 (2d Cir. 1996) (finding that the district court properly dismissed the claim
12
because "GE [] failed to allege the requisite scienter with regard to its claim that
GE misrepresented the efficacy of its financial controls"); In re Societe Generale
SQQ[,-Lij;~,
2010 \VL 3910286;
In r~jl.igroup,
Inc. Secs. Litig., 330 F. Supp. 2d
367, 375-76. 9
In Societe Generale, plaintiffs alleged that defendants stated that their risk
control systems were "highly sophisticated" but in fact were not, and that these
systems contributed to losses incurred by a trader. Id. at *3. The court dismissed
the complaint on the basis that it was at least as likely as not that defendants
believed they were taking adequate risk management and cautionary measures. Id.
at *7. In particular the court stated that "plaintiffs' 'amalgam of suggestions' that
[dJefendants were aware of facts suggesting that their public statements regarding
internal risk controls and subprime holdings were inaccurate and false do not give
rise to the inference of scienter." Id. at *8 (citing City of Brockton Ret. Sys. v. Shaw
Qrp., Inc., 540 F. Supp. 2d 464, 473, 475 (S.D.N.Y. 2008)); see also In re Citigroup,
Inc. Sec. Litig., 753 F. Supp. 2d 206, 245-46 (S.D.N.Y. 2010).
In the certain instances where courts have allowed such claims to proceed, the
facts as alleged made a stronger showing of scienter than the allegations currently
before this Court. See, e.g., In re Fannie Mae 2008 Secs. Litig., 742 F. Supp. 2d 382,
406-07 (S.D.N.Y. 2010) (holding that emails suggesting "Fannie was conscious of its
internal inability to manage the risks associated with subprime loans ... show an
inference of scienter and therefore survive a motion to dismiss"); Varghese v. China
~henghuo Ph~rm._HQldings, Inc., 672 F. Supp. 2d 596, 606-07 (S.D.N.Y. 2(09)
(holding that plaintiffs allegations were sufficient to support a claim of recklessness
because they "point[edJ to the repeated disclosures of [defendant's] weak internal
controls as evidence that the [defendants] were aware of the deficient controls, and
that these flaws were likely influencing financial results").
9
13
Here, plaintiffs claim that defendants had access to, or should have know of
facts which would have demonstrated that their statements regarding risk were
untrue - but, plaintiffs have failed to specify such other information. Teamsters
JJoca1445 Freight Div. Pension Fund v. Dynex Cap., 531 F. 3d 190, 196 (2d Cir.
2008). In the absence of a showing that false statements were knowingly or
recklessly made, plaintiffs have failed to state a claim pursuant to Section 10(b) .
.M oreover, as set forth above, the alleged misstatements are set forth in the
operative Complaint in list form. Plaintiffs fail to sufficiently link misstatements to
particular intentional to manipulate or deceive in making such statements. For
instance, the operative Complaint alleges generally that "defendants' fraudulent
conduct allowed them to preserve UBS's positive credit ratings." (Am. Compl. ,[
129). This is precisely the sort of generalized corporate conduct courts have found
insufficient to support a strong inference of scienter.
See,~,
Kalnit, 264 F.3d at
139, 142; Novak, 216 F.3d at 307-09.
As to the Individual Defendants, plaintiffs' allegations are similarly
generalized and inadequate. For instance, plaintiffs assert that the Individual
Defendants acted recklessly by certifying UBS's risk, or making statements
i'egarding risk, in the absence of a variety of reports and other information that
would have revealed to them that their positive statements regarding risk controls
were wrong. (Am. Compl.
~['i
135-37, 147-48, 156, 164.) However, the information
to which plaintiffs point is no more than generalized corporate reporting; plaintiffs
fail to tie any of the specific report or information to the particular statements
14
made. Nothing in the operative Complaint suggests that certification in the
absence of such information constitutes an "egregious departure" from expected
conduct. There are many reasons why each of the Individual Defendants could have
made the certifications and statements that they did - most of which have nothing
at all to do with fraud. Under the Supreme Court's decision in Tellabs, these
competing inferences negate a strong inference of scienter. Tellabs, 551 U.S. at 314
(the inferences of scienter must be more than plausible or reasonable; they must be
at least as compelling as any competing inference.)
Plaintiffs also suggest that an inference of scienter can be drawn from
Grubel's resignation (see Am. Compl.
,r 141), and Kengeter's demotion and
resignation. (Id.,r 268.) Again, there are a number of other, more plausible reasons
why personnel may have been demoted and resigned, some of which may be related
to significant trading loss but are not suggestive of intentional fraud. Under such
circumstances, they are insufficient. See Tellabs, 551 U.S. at 313.
Plaintiffs also assert that each of the Individual Defendants had a motive to
preserve his corporate position. (Am. Compl.
,r,r 140, 151, 159, 167.)
As discussed,
these generalized allegations of motive connected to corporate position (and
compensation) have been found insufficient to support scienter. I(alnit, 264: F.3d at
139, 142;
~ovak,
216 F.3d at 307 (citation omitted); In re BISYS Sees. Litig., 397 at
446 n.85.
It is well established in the Second Circuit that Section 10(b) claims are not
supported if the crux of the allegations is that a company was mismanaged; the
15
allegations must allege "manipulation
01'
deception." Decker v. Massey-Ferguson,
Ltd., 681 F.2d 111, 115 (2d Cil'. 1982) (citations omitted);
JJ1~re
Citigroup, Inc. Sees.
Jjtig.=., 330 F. Supp. 2d at 376. Here, that a "rogue" trader was able to cause such a
significant loss to UBS is more akin to a claim of mismanagement than of fraud.
d. Loss
Causatj~ll
Plaintiffs
haV(~
also failed adequately to allege loss causation. Loss causation
is an essential element of any 10b-5 claim. See ECA",-Local 134 IBEW Joint Pension
Ir.ll§l,
553 F.3d at 197. It is not simply that plaintiffs have to allege that they
suffered loss; rather, plaintiffs must tie the allegedly fraudulent conduct to the loss
they assert they have experienced.
Here, plaintiffs contend that following the revelation of the "rogue trader's"
loss, the UBS stock price declined significantly. (Am. Compl.
,r 171.)
According to
plaintiffs, that decline was the "direct result of the nature and extent of defendants'
prior misstatements and omissions being revealed to the market." (Id.,r 172.)
Plaintiffs make this assertion in a conclusory manner: they do not attempt to tie
the particular misstatements to the particular events on September 15, 2011, the
last day of the class period. Such a conclusory statement as to loss causation is
insufficient as a matter of law. See Dura Pharm.) Inc. v. Broudo, 544 U.S. 336, 346
47 (2005).
There can be little doubt that it would take a significant number of steps to
tie the alleged misstatements and omissions to the diminution in UBS's stock price
that occurred on a particular day. The fact that a rogue trader's loss was revealed
16
does not, ipso facto, demonstrate fraud; similarly, it does not causally tie the alleged
statements to loss. This is too speculative to support the type of loss causation
needed to sustain a claim of securities fraud. See Lentell v. Merrill Lynch & Co.,
396 F.3d 161, 175 (2d Cir. 2005) ("To plead loss causation, the complaints must
allege facts that support an inference that Merrill's misstatements and 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 the
fraud.").
IV.
CONCLUSION
For the reasons set forth above, defendants' motion to dismiss is GRANTED.
The Clerk of Court is directed to close the motion at ECF No. 47 and to
terminate this action.
SO ORDERED.
Dated:
New York, New York
December _,2013
~1;.. ~
KATHERINE B. FORREST
United States District Judge
17
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