Gusinsky v. Barclays PLC et al
Filing
103
OPINION AND ORDER re: 97 MOTION to Dismiss the Second Amended Complaint (Renewed). filed by Marcus A. P. Agius, Barclays Capital Inc, John Varley, Barclays Bank PLC, Barclays PLC. For the foregoing reasons, Defendants' motio n is DENIED in its entirety. A status conference will be held on October 30, 2014, at 4:30 p.m. SO ORDERED. (See Order.) (Status Conference set for 10/30/2014 at 04:30 PM before Judge Shira A. Scheindlin.) (Signed by Judge Shira A. Scheindlin on 10/20/2014) (ajs)
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FIRE RETIREMENT SYSTEM, and
POMPANO BEACH POLICE &
FIREFIGHTERS' RETIREMENT SYSTEM,
OPINION AND ORDER
Plaintiffs,
12-cv-5329 (SAS)
v.
BARCLAYS PLC, BARCLAYS BANK PLC,
BARCLAYS CAPITAL INC., MARCUS A.P.
AGIUS, JOHNS. VARLEY, and ROBERT E.
DIAMOND, JR.,
Defendants.
x
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
Plaintiffs - a putative class of purchasers of American Depositary
Shares of Barclays PLC between July 10, 2007 and June 27, 2012 - bring claims
for violations of section 1O(b) of the Securities Exchange Act of 1934 ("Exchange
Act") and Rule 1Ob-5 promulgated thereunder against three corporate defendants Barclays PLC, Barclays Bank PLC ("Barclays Bank"), and Barclays Capital Inc.
("BCI") (collectively "Barclays") - and one individual defendant - Robert E.
Diamond, Jr. In addition, they bring claims under section 20(a) of the Exchange
1
Act against individual defendants Diamond, Marcus A.P. Agius, and John S.
Varley.1
As a result of prior rulings, only two sets of alleged misstatements
remain in this case: Barclays’s London Interbank Offered Rate (“LIBOR”)
submissions from August 2007 through January 2009, and Diamond’s remarks
during a conference call with market analysts on October 31, 2008.2 For purposes
of this Opinion and Order, familiarity with these prior rulings – including the
general background and facts alleged in the Second Amended Complaint
(“Complaint” or “SAC”) – is assumed.3
1
On August 25, 2014, Plaintiffs voluntarily dismissed all claims
against Christopher Lucas, and the section 10(b) claims against Varley and Agius.
See Docket No. 96.
2
See generally Carpenters Pension Trust Fund of St. Louis v. Barclays
PLC, 750 F.3d 227 (2d Cir. 2014) (“Carpenters”), affirming in part and reversing
in part Gusinsky v. Barclays PLC, 944 F. Supp. 2d 279 (S.D.N.Y. 2013).
3
The Complaint incorporates by reference several investigative reports,
including: (i) the Statement of Facts accompanying the Non-Prosecution
Agreement between Barclays and the United States Department of Justice dated
June 27, 2012 (“DOJS”); (ii) the settlement agreement between Barclays and the
United States Commodity Futures Trading Commission, also dated June 27, 2012
(“CFTCS”); and (iii) the House of Commons Treasury Committee’s preliminary
findings, titled “Fixing LIBOR: some preliminary findings, Second Reports of
Session 2012-13, Vol. II: Oral and written evidence,” published on August 18,
2012 (“TCPF”). Furthermore, as Defendants acknowledge, the statements in the
DOJS are “factual admissions.” Defendants’ Memorandum of Law in Support of
Their Renewed Motion to Dismiss the Second Amended Complaint (“Def.
Mem.”), at 4.
2
Defendants seek dismissal of the Complaint pursuant to Federal Rule
of Civil Procedure 12(b)(6) on grounds raised, but not considered, in their prior
motion to dismiss. They contend that the Complaint does not adequately allege
scienter as to any defendant, the materiality of Diamond’s statements, that Barclays
PLC, BCI, or Diamond made LIBOR submissions, or, with respect to the section
20(a) claims, a primary violation or culpable participation by the individual
defendants.4 For the following reasons, Defendants’ motion is DENIED.
II.
STANDARD OF REVIEW
A.
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.”5 “When there are well-pleaded factual
allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement for relief.”6 A claim is plausible “when the
4
See Def. Mem. at 11-25; Defendants’ Reply Memorandum of Law in
Further Support of Their Renewed Motion to Dismiss the Second Amended
Complaint (“Reply Mem.”), at 2-10.
5
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.
2008)).
6
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Accord Kiobel v. Royal
Dutch Petroleum Co., 621 F.3d 111, 124 (2d Cir. 2010).
3
plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”7 Plausibility
requires “more than a sheer possibility that a defendant has acted unlawfully.”8
When 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.”9 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.”10 When a securities fraud complaint alleges that material
misstatements or omissions were made in public documents required to be filed
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 . . . .”11
B.
Heightened Pleading Standard Under Rule 9(b) and the PSLRA
7
Iqbal, 556 U.S. at 678 (quotation marks omitted).
8
Id. (quotation marks omitted).
9
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)).
10
Id. (quoting Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir.
2006)).
11
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).
4
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 Private Securities Litigation Reform Act of 1955 (“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.”12 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 mind.”13
III.
DISCUSSION
A.
Scienter
I turn first to Defendants’ argument that the Complaint fails to
adequately plead scienter. A plaintiff may establish scienter by alleging facts that
either (1) show that the defendant had both the “motive and opportunity” to
commit the alleged fraud, or (2) “constitute strong circumstantial evidence of
conscious misbehavior or recklessness.”14
12
15 U.S.C. § 78u-4(b)(1)(B).
13
Id. § 74u-4(b)(2).
14
Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290-91 (2d Cir. 2006).
5
1.
Corporate Defendants
“When the defendant is a corporate entity, . . . the pleaded facts must
create a strong inference that someone whose intent could be imputed to the
corporation acted with the requisite scienter.”15 In this context, “it is possible to
raise the required inference [of scienter] with regard to a corporate defendant
without doing so with regard to a specific individual defendant.”16
The only actionable misstatements attributable to the corporate
defendants are the understated “Dollar LIBOR Rate Submission Rates submitted
by Barclays’ London Money Market Desk from August 2007 through January
2009[.]”17 The Complaint and the investigative reports it incorporates by reference
contain both general and specific allegations relating to Barclays’s scienter.
The DOJS states that “‘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.’”18 Likewise, the
15
Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital
Inc., 531 F.3d 190, 195 (2d Cir. 2008).
16
Id.
17
SAC ¶ 171.
18
Id. (quoting DOJS ¶ 36).
6
CFTCS states that “[t]he management directive [to understate LIBOR rates]
impacted at least Barclays’ U.S. Dollar LIBOR submissions in multiple maturities
[ ] on a regular basis throughout the financial crisis period.”19 These general
statements are supported by specific examples – based on internal company
documents – of the submission of false LIBOR rates.20
Defendants do not dispute that Barclays knowingly engaged in this
conduct. Moreover, I must also assume that the danger of misleading investors
here was real because the Second Circuit has held that the materiality of the
LIBOR submissions was adequately pled.21 While I agree that pointing to a
violation of British Banking Authority (“BBA”) rules is alone insufficient to
adequately allege scienter,22 Barclays’s repeated, long-term, and knowing
submission of false rates suggests far more than an intent to violate BBA rules.
Rather, this conduct constitutes “strong circumstantial evidence of conscious
misbehavior or recklessness.”23 Accepting the Complaint’s allegations as true, and
19
A complete copy of the CFTCS is available online on the CFTC’s
website.
20
See SAC ¶¶ 57-75.
21
See Carpenters, 750 F.3d at 235.
22
See Def. Mem. at 13-14.
23
Novak v. Kasaks, 216 F.3d 300, 308 (2d Cir. 2000).
7
viewing all inferences in favor of Plaintiffs, Barclays’s conduct was – at the very
least – “highly unreasonable” and an “extreme departure from the standards of
ordinary care.”24 Thus, the Complaint’s allegations are sufficient to give rise to a
strong inference that “the danger was either known to [Barclays] or so obvious that
[Barclays] must have been aware of it.”25
Furthermore, the Complaint also plausibly alleges Barclays’s motive –
to counter negative perceptions about its borrowing costs and, more generally, its
financial condition. Barclays submitted rates “‘nearer to the expected rates of
other Contributor Panel banks’”26 to “deceive the market about the rate at which
Barclays truly believed it could borrow funds.”27 The perceptions about Barclays’s
liquidity problem are well documented. A September 2007 Bloomberg article
posed the question, “what the hell is happening at Barclays and its Barclays Capital
securities unit that is prompting its peers to charge it premium interest rates in the
money market?”28 For another example, on October 29, 2008, an official at the
24
Chill v. General Elec. Co., 101 F.3d 263, 269 (1996) (quotation marks
omitted).
25
Id. (quotation marks omitted).
26
SAC ¶ 171 (quoting DOJS ¶ 36).
27
Id. ¶ 173.
28
Id. ¶ 57.
8
Bank of England called Diamond – then Barclays’s Chief Executive Officer – to
“discuss[ ] the external perceptions of Barclays’s LIBOR submissions and
questioned why Barclays’s submissions were high compared to other Contributor
Panel banks.”29
In the case of Diamond, the Complaint alleges that following the Bank
of England call, he issued a directive to lower the LIBOR rates. Taken together
with the allegations concerning Barclays’s conduct, these allegations “give rise to a
‘cogent and compelling’ inference that” Barclays falsified the LIBOR submissions
“because it understood their likely effect on the market.”30
Defendants contend that scienter not been pled because Barclays had
an innocent motive for understating LIBOR rates. They argue that Barclays was
merely attempting “to correct a misimpression in the market, and avoid any
‘inaccurate, negative attention about Barclays’s financial health’ (DOJS ¶¶ 39-40),
which might have resulted from making higher LIBOR submissions when other
banks were making ‘unrealistically low’ submissions (CFTCS at 19).”31
29
DOJS ¶ 47.
30
Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1324-25
(2011) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324
(2007)).
31
Reply Mem. at 3.
9
Defendants also argue that Barclays’s “repeated disclosures to regulators and the
BBA concerning its LIBOR submission practices and suspected industrywide
problems with LIBOR also undermine any inference of scienter.”32
While either of these arguments may create an issue of fact or be
persuasive to a jury, the Supreme Court instructs that scienter is adequately pled
when “‘a reasonable person would deem the inference of scienter cogent and at
least as compelling as any opposing inference one could draw from the facts
alleged.’”33 Here, the inference of scienter is cogent and at least as compelling as
the competing inference of innocent intent suggested by Defendants.
2.
Diamond
Robert E. Diamond, Jr. served as Barclays PLC’s President from at
least the start of the Class Period until January 1, 2011, when he became Chief
Executive Officer.34 Plaintiffs seek to hold Diamond liable for (1) the LIBOR
submissions and (2) remarks he made during an October 31, 2008 conference call
32
Def. Mem. at 13.
33
Matrixx Initiatives, Inc., 131 S. Ct. at 1324 (quoting Tellabs, Inc., 551
U.S. at 323, 324). See also Tellabs, Inc., 551 U.S. at 324 (“To determine whether
the plaintiff has alleged facts giving rise to the requisite ‘strong inference,’ a court
must consider plausible, nonculpable explanations for the defendant’s conduct, as
well as inferences favoring the plaintiff.”).
34
See Def. Mem. at 3 (citing SAC ¶ 14).
10
with market analysts.
a.
LIBOR Submissions
On October 29, 2008, an official at the Bank of England called
Diamond to “discuss[ ] the external perceptions of Barclays’s LIBOR submissions
and questioned why Barclays’s submissions were high compared to other
Contributor Panel banks.”35 Following this call, Diamond spoke with Jerry del
Missier (“del Missier”), a senior executive who at one point was Barclays’s Chief
Operating Officer. In testimony before Parliament in July 2012, del Missier
testified that he received an instruction from Diamond to understate LIBOR
submissions so that Barclays would “not be an outlier.”36 Del Missier passed down
that instruction to Mark Dearlove (“Dearlove”), the “Managing Director of
Barclays Capital Inc. and head of the money market desk” responsible for making
daily LIBOR submissions.37
Defendants argue that del Missier’s testimony does not give rise to an
inference of scienter because del Missier testified that he believed that the Bank of
35
DOJS ¶ 47.
36
SAC ¶ 74.
37
Id.
11
England had communicated the instruction to Diamond.38 Del Missier also
testified that if he had believed someone inside Barclays initiated the instruction,
he would not have followed it.39 However, del Missier’s state of mind is not
relevant to Diamond’s state of mind. The Complaint alleges that Diamond issued
an instruction to del Missier to post lower rates so that Barclays would not be
perceived as an outlier. A review of all the allegations, including the House of
Commons Treasury Committee’s preliminary findings,40 which Defendants argue
defeats the inference of scienter, supports a cogent and compelling inference that
Diamond acted with the intent to deceive the market. This is because the most
compelling inference – given that Barclays employees were not likely submitting
high rates when they could have been submitting lower ones in compliance with
the LIBOR-setting regulations – is that Diamond knew that his instruction would
result in LIBOR submissions that did not comply with the law.
In addition, October 2008 was roughly a month after Lehman’s
collapse, and until that time “Barclays had been submitting relatively high
38
See Def. Mem. at 15-17.
39
See id. at 15 n.17.
40
See Ex. G to 8/25/14 Declaration of Matthew J. Porpora in Support of
Defendants’ Renewed Motion to Dismiss the Second Amended Complaint
(“Porpora Decl”).
12
submission rates, suggesting that Barclays was experiencing financial difficulties
and liquidity problems.”41 The Complaint’s allegations, including the historical
context, provide a clear motive; the fact that Barclays made false LIBOR
submissions following Diamond’s instruction, evince opportunity. Finally, when
the allegations are viewed as a whole, the competing inferences Defendants urge –
that Diamond did not intend to instruct del Missier to lower LIBOR submissions
and did not know that del Missier had misinterpreted their conversation – are not
stronger than the inference of his fraudulent intent.42
b.
Diamond’s 2008 Remarks – Materiality and Scienter
On October 31, 2008, Barclays hosted a conference call with analysts.
During the call, an analyst asked how deposit flows “tie[d] . . . together” with the
analyst’s observation that Barclays was “consistently paying slightly higher than
most of the other UK banks in the LIBOR rate.”43 Plaintiffs seek to hold Diamond
liable for two statements made in response: (1) “we’re categorically not paying
higher rates in any currency” and (2) “we benefit in times of turmoil, so we post
41
Lead Plaintiffs’ Memorandum of Law in Opposition to Defendants’
Renewed Motion to Dismiss the Second Amended Complaint, at 15 (citing SAC ¶
74).
42
The allegations regarding Diamond’s July 2012 resignation from
Barclays add further support to this inference. See SAC ¶ 179.
43
Id. ¶ 108.
13
where we’re transacting, and it’s clearly not at high levels.”44
Defendants argue that the Complaint does not adequately plead either
material falsity or scienter. They contend that Diamond’s statements “relate to
Barclays’ borrowing costs, and were not representations regarding Barclays Bank’s
allegedly false USD LIBOR submissions.”45 They argue that the Complaint fails to
adequately allege falsity because it does not address Barclays’s actual borrowing
costs or, for that matter, the actual borrowing costs of other banks.
The Second Circuit has already held that the Complaint adequately
alleges that “Diamond’s 2008 remarks” are material misrepresentations.46 At the
very least, Diamond’s remarks were misleading. For example, a reasonable
investor could have taken Diamond’s statement about borrowing costs to be about
Barclays’s LIBOR submission rates. And the statement that Barclays “posts where
[it’s] transacting” further concealed the fact that those LIBOR submissions were
44
Id. Defendants argue that Plaintiffs have waived their right to
challenge Diamond’s second statement – that “we post where we’re transacting,
and it’s clearly not at high levels” – because Plaintiffs did not argue against
dismissal of claims based on that statement before the Second Circuit. See Def.
Mem. at 19 n.22. However, the Second Circuit held that the Complaint adequately
alleged that “Diamond’s 2008 remarks” were materially misleading. Carpenters,
750 F.3d at 235 (emphasis added); see id. at 237 (vacating dismissal of claims
based on “Diamond’s 2008 conference call remarks”) (emphasis added).
45
Def. Mem. at 19.
46
Carpenters, 750 F.3d at 235.
14
“lower than Barclays otherwise would have submitted and contrary to the
definition of LIBOR.”47
With respect to scienter, Defendants contend that the Complaint does
not sufficiently allege that Diamond was reckless in making these statements,
because it does not allege either the rates at which Barclays was borrowing
unsecured cash in the London market at the time the statements were made or that
Diamond was or should have been aware of information that contradicted his
comments.48 However, Diamond’s conversations with the Bank of England and
del Missier took place just two days before the conference call, and his instruction
to del Missier is inconsistent with the truth of either of his statements. This
inconsistency, together with the conduct alleged, creates a cogent and compelling
inference that – at the very least – Diamond acted recklessly.
B.
Dismissal of Claims Against Defendants Who Did Not “Make”
LIBOR Submissions
Defendants contend that because Barclays PLC, BCI, and Diamond
did not “make” LIBOR submissions, the claims against them based on those
statements must be dismissed under Janus Capital Group v. First Derivatives
47
DOJS ¶ 36.
48
Def. Mem. at 19.
15
Traders (“Janus”).49 In Janus, the Supreme Court explained that:
For purposes of Rule 10b-5, the maker of a statement is the person
or entity with ultimate authority over the statement, including its
content and whether and how to communicate it. Without control,
a person or entity can merely suggest what to say, not “make” a
statement in its own right. One who prepares or publishes a
statement on behalf of another is not its maker. And in the
ordinary case, attribution within a statement or implicit from
surrounding circumstances is strong evidence that a statement was
made by – and only by – the party to whom it is attributed.50
Defendants argue that “[t]he challenged LIBOR submissions were explicitly
attributed to Barclays Bank[,]” and that neither Barclays PLC nor BCI can be said
to have made the submissions “simply because they are corporate affiliates of
Barclays Bank.”51 With respect to Diamond, they assert that the Complaint fails to
allege that he prepared, reviewed, or submitted LIBOR rates such that he had
ultimate authority over these statements.52
The Complaint alleges that Barclays PLC is a publicly held
corporation, based in the United Kingdom, that provides global financial services.53
Diamond was Barclays PLC’s President from at least the start of the Class Period
49
See id. at 21-22 (citing Janus, 131 S. Ct. 2296, 2302 (2011)).
50
Janus, 131 S. Ct. at 2302.
51
Def. Mem. at 21.
52
See id. at 22.
53
See SAC ¶ 10.
16
until January 1, 2011, when he became Chief Executive Officer. Barclays Bank is
a wholly owned subsidiary of Barclays PLC. BCI is a registered securities brokerdealer that is an indirectly owned subsidiary of Barclays PLC.54
Janus does not warrant dismissal of the claims against Diamond,
Barclays PLC, or BCI. “[Janus] does not imply that there can be only one ‘maker’
of a statement in the case of express or implicit attribution.”55 It also “did not [ ]
alter the well-established rule that a corporation can act only through its employees
and agents.”56 Thus, while Barclays Bank was the entity on the LIBOR panel,
Diamond, Barclays PLC, and BCI could also be makers provided that the
Complaint adequately alleges that the statements are also attributable to them.57 I
54
See id. ¶ 12.
55
City of Roseville Emps. Ret. Sys. v. EnergySolutions, Inc., 814 F.
Supp. 2d 395, 417 n.9 (S.D.N.Y. 2011) (“City of Roseville”).
56
In re Pfizer Inc. Sec. Litig., 936 F. Supp. 2d 252, 268 (S.D.N.Y. 2013)
(quotation marks omitted). Accord City of Pontiac v. Lockheed Martin Corp., 875
F. Supp. 2d 359, 373 (S.D.N.Y. 2012) (stating that Janus addressed only whether
third parties can be held liable for statements made by their clients. Its logic rested
on the distinction between secondary liability and primary liability . . . and has no
bearing on how corporate officers who work together in the same entity can be
held jointly responsible on a theory of primary liability. It is not inconsistent with
Janus Capital to presume that multiple people in a single corporation have the joint
authority to ‘make’ an SEC filing, such that a misstatement has more than one
‘maker.’”).
57
See City of Roseville, 814 F. Supp. 2d at 418 (“Janus recognized that
attribution [can] be ‘implicit from surrounding circumstances’”) (quoting Janus,
17
will first consider the Complaint’s allegations as to Diamond and Barclays PLC.
1.
Diamond and Barclays PLC
As already discussed, the Complaint plausibly alleges that Diamond –
Barclays PLC’s President at the time – was able to cause Barclays Bank to make
false LIBOR statements by instructing it to do so.58 This alone implies a level of
control on the part of Diamond that is sufficient at the pleading stage to
withstand scrutiny under Janus.59 Furthermore, the CFTCS defines “Barclays” to
include Barclays PLC, Barclays Bank, and “Barclays Capital.”60 And according to
the CFTCS, “Barclays PLC, Barclays Bank and Barclays Capital . . . repeatedly
attempted to manipulate and made false, misleading or knowingly inaccurate
submissions concerning” LIBOR.61 In other words, the CFTCS treats Barclays
PLC as a maker of the LIBOR submissions. This is also consistent with the theory
131 S. Ct. at 2302).
58
See SAC ¶ 74.
59
See In re Fannie Mae 2008 Sec. Litig., 891 F. Supp. 2d 458, 473
(S.D.N.Y. 2012) (“While it is correct that [defendant] did not sign any of the SEC
filings at issue, he still may be found to have made a misstatement. In the
post-Janus world, an executive may be held accountable where the executive had
ultimate authority over the company’s statement; signed the company’s statement;
ratified and approved the company’s statement; or where the statement is attributed
to the executive.”), aff’d, No. 12-3859, 2013 WL 1982534 (2d Cir. May 15, 2013).
60
CFTCS at 2.
61
Id. (emphasis added).
18
underlying this case that the market attributed statements about LIBOR to Barclays
PLC in the sense that the LIBOR submissions were regarded as saying something
about its liquidity and financial condition. Accordingly, accepting the Complaint’s
allegations as true, and drawing all inferences in favor of Plaintiffs, it is plausible
that Diamond and Barclays PLC are “makers” within the meaning of Janus.
2.
BCI
The Complaint alleges that Barclays made LIBOR submissions
through Barclays’s London Money Market Desk and that this Money Market Desk
was part of BCI during the relevant time period.62 The Complaint also states that
the head of the London Money Market Desk was Dearlove, who was the Managing
Director of BCI.63
Defendants assert that “[p]laintiffs appear to be conflating Barclays
Capital, the trade name of the investment banking division of Barclays Bank, with
BCI, a totally separate entity, with a different name.”64 They refer the Court to
BCI’s December 31, 2011, Annual Audited Report, Form X-17A-565 to rebut the
62
See SAC ¶ 43.
63
See id. ¶ 74.
64
Def. Mem. at 21 n.25.
65
See Ex. H to Porpora Decl.
19
allegation that “‘[t]he London Money Market Desk was, at the time, part of
Barclays Capital Inc.’”66 But the DOJS defines “Barclays,” as Barclays Bank and
“Barclays Capital Inc.”67 And it goes on to state that “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.”68
Thus, the DOJS implies that BCI made the false submissions. Accordingly,
accepting the Complaint’s allegations as true, and drawing all reasonable
inferences in favor of the Plaintiffs, it is plausible that BCI is a “maker” within the
meaning of Janus.69
C.
The Section 20(a) Claims Against Diamond, Agius, and Varley
Defendants argue that the section 20(a) claims against Diamond,
Agius, and Varley should be dismissed because of the absence of a primary
violation and the failure to plead culpable participation.70 Based on the above
rulings, the motion is denied as to Diamond. With respect to Agius and Varley, the
66
Def. Mem. at 21 n.25 (quoting SAC ¶ 43).
67
DOJS ¶ 10 (emphasis added). As noted, the statements in the DOJS
Statement of Facts are factual admissions. See Def. Mem. at 4.
68
DOJS ¶ 36 (emphasis added).
69
The dispute over whether BCI is a proper defendant, if not voluntarily
resolved by the parties, will have to be resolved on summary judgment or at trial.
70
See Def. Mem. at 22-24.
20
Complaint alleges that they served as Barclays Bank’s Group Chairman and Group
Chief Executive, respectively, during the class period.71 It also alleges that by
holding these positions, Agius and Varley were “controlling persons” with the
authority to cause Barclays to commit the acts alleged to violate section 10(b).72
And it states that Agius and Varley, “by virtue of their receipt of information
reflecting the true facts regarding Barclays, their control over and/or receipt of
Barclays’s allegedly materially misleading statements, knowingly participated in
the fraudulent scheme alleged herein.”73
Defendants do not dispute that the Complaint alleges that Agius and
Varley are control persons. Thus, the only open question is whether the motion
should be granted as to Agius and Varley on grounds that the Complaint does not
plead culpable participation. It remains unsettled in this District whether control
person liability is premised on fraud, and thus whether culpable participation
71
See SAC ¶¶ 13, 16. Diamond replaced Varley as Chief Executive
Officer in 2011. See id. ¶ 13.
72
Id. ¶ 211.
73
Id. ¶ 185. The Complaint also alleges that Agius resigned following
disclosure of the false LIBOR reporting. See id. ¶¶ 13, 177-178. In his press
release, Agius acknowledged “unacceptable standards of behaviour within the bank
. . . .” Id. ¶ 178.
21
imports a scienter requirement.74 These issues in turn impact whether Rule 8, Rule
9(b), and/or the heightened pleading requirements of the PSLRA apply. I have
previously held that scienter is not an essential element of a section 20(a) claim and
that neither Rule (9)(b) nor the PSLRA apply,75 and I continue to adhere to this
74
See generally Special Situations Fund III QP, L.P. v. Deloitte Touche
Tochmatsu CPA, Ltd., No. 13 Civ. 1094, 2014 WL 3605540, at *24-25 (S.D.N.Y.
July 21, 2014) (“While district courts tend to frame the debate as whether ‘culpable
participation’ is a required element of a Section 20(a) claim, the debate is more
properly understood as a disagreement over the meaning of culpable
participation.”) (quotation marks and citations omitted) (emphasis in original); see
also id. at *24 (“[D]istrict courts within the Second Circuit disagree on the
question of whether Section 20(a) plaintiffs must also allege ‘culpable
participation’ as a third element of their claim, or, alternatively, whether section
20(a) created a burden-shifting framework where plaintiffs must only plead a
primary section 10(b) violation and control, with defendants allowed to raise a
good faith defense in their answer that can later be rebutted by plaintiffs.”)
(quotation marks omitted); In re Parmalat Sec. Litig., 414 F. Supp. 2d 428, 440-41
(S.D.N.Y. 2006).
75
See, e.g., Pension Comm. of the Univ. of Montreal Pension Plan v.
Banc of America Sec., LLC, 446 F. Supp. 2d 163, 191 (S.D.N.Y. 2006) (“As this
Court has previously held, a plaintiff need not affirmatively plead scienter on the
part of a control person under section 20(a). Moreover, under Rule 8, plaintiffs are
not required to plead facts to demonstrate culpable participation.”). While one may
quibble with the exact tally, it appears that a majority of courts within this District
have required plaintiffs to allege scienter. See Special Situations Fund III, 2014
WL 3605540, at *24. However, the Second Circuit has not yet ruled on whether
scienter needs to be pled, and the Fifth, Seventh, Eighth, Ninth, Tenth, and
Eleventh Circuits have all rejected a scienter requirement, holding that good faith
may be asserted as an affirmative defense. See G.A. Thompson & Co. v. Partridge,
636 F.2d 945, 958 (5th Cir. 1981); Harrison v. Dean Witter Reynolds, Inc., 974
F.2d 873, 881 (7th Cir. 1992); Metge v. Baehler, 762 F.2d 621, 631 (8th Cir.
1985); Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1575 (9th Cir. 1990) (en
banc); First Interstate Bank of Denver, N.A. v. Pring, 969 F.2d 891, 896-97 (10th
22
view.
While merely identifying the title of a corporate officer is
insufficient to state a claim, the Complaint does far more than that. It generally
alleges control and participation on the part of Barclays Bank’s Group Chairman
and Group Chief Executive – the entity Defendants admit was responsible for
making LIBOR submissions – and then describes sustained and long-running
misconduct that was known to management, including high-ranking corporate
officers such as Diamond, del Messier, and Dearlove.76 These allegations are
sufficient to state a claim against Agius and Varley under section 20(a).
Cir. 1992), rev’d on other grounds sub nom. Central Bank v. First Interstate Bank,
511 U.S. 164 (1994); Brown v. Enstar Group, Inc., 84 F.3d 393, 396 (11th Cir.
1996). And an apparent “majority of courts[ ] have held that a claim for liability
[under section 20(a)] requires only notice pleading.” Brent A. Olson, 2 Publicly
Traded Corporations: Governance and Regulation § 16:2 (2014) (citing cases).
76
See SAC ¶¶ 53 (“Certain members of management of Barclays,
including senior managers . . . , directed that the Barclays Dollar LIBOR
submitters contribute rates that were nearer to the expected rates of other
Contributor Panel banks rather than submitting the true, higher LIBORs”), 59
(describing internal pressure to understate LIBOR rates), 63 (“On November 27,
2007, Barclays’s senior Dollar LIBOR submitter emailed a group of Barclays’s
employees, including senior Barclays Treasury managers, stating ‘LIBORs are not
reflecting the true cost of money . . . .’”), 64 (after issue of submitting inaccurate
LIBORs was taken “upstairs” the practice continued), 65 (it was the understanding
among submitters that senior management had discussed the issue and directed
them to continue to understate LIBOR), 67 (same), 74 (describing the interaction
between Diamond, del Missier, and Dearlove).
23
IV.
CONCLUSION
For the foregoing reasons, Defendants' motion is DENIED in its
entirety. A status conference will be held on October 30, 2014, at 4:30 p.m.
Dated:
New York, New York
October 20, 2014
24
-AppearancesFor Plaintiffs:
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
(631) 367-7100
Thomas C. Michaud, Esq.
Vanoverbeke Michaud & Timmony, P.C.
79 Alfred Street
Detroit, MI 48201
(313) 578-1200
Joseph E. White III, Esq.
Saxena White P.A.
2424 N. Federal Highway, Suite 257
Boca Raton, FL 33431
(561) 394-3399
Gregory Mark Nespole, Esq.
Robert B. Weintraub, Esq.
Wolf Haldenstein Adler Freeman & Herz LLP
270 Madison Avenue
New York, NY 10016
(212) 545-4689
For Defendants:
David H. Braff, Esq.
Jeffrey T. Scott, Esq.
Stephen H. O. Clarke, Esq.
Sullivan & Cromwell LLP
25
125 Broad St.
New York, NY 10004
(212) 558-4000
Jonathan D. Schiller, Esq.
Boies Schiller & Flexner LLP
575 Lexington Avenue
New York, NY 10022
(212) 446-2300
Michael Brille, Esq.
Boies Schiller & Flexner LLP
5301 Wisconsin Avenue NW
Washington, D.C. 20015
(202) 237-2727
Andrew J. Levander, Esq.
Jeffrey A. Brown, Esq.
Dechert LLP
1095 Avenue of the Americas
New York, NY 10036
(212) 698-3500
Elisa T. Wiygul, Esq.
Dechert LLP
2929 Arch Street
Philadelphia, PA 19104
(215) 994-4000
26
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