Schwab v. E Trade Financial Corporation et al

Filing 69

OPINION AND ORDER re: 56 MOTION to Dismiss the Second Amended Complaint. filed by Paul T Idzik, ETRADE Securities LLC, Karl A. Roessner, E Trade Financial Corporation, 47 MOTION to Dismiss The Amended Complaint. filed b y Paul T Idzik, ETRADE Securities LLC, Roger A Lawson, David Herbert, Karl A. Roessner, E Trade Financial Corporation. The Court has considered all of the remaining arguments of the parties. To the extent not specifically addressed above, they are either moot or without merit. For the foregoing reasons, the defendants' motion to dismiss is granted and the SAC is dismissed without prejudice with respect to any claims arising before the date this action was filed on July 22, 2016. The plaintiff may file a third amended complaint within thirty (30) days of the filing of this Opinion and Order. The Clerk is directed to close all pending motions. SO ORDERED. (Signed by Judge John G. Koeltl on 7/10/17) (yv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
SCHWAB, INDIVIDUALLY AND ON BEHALF
OF ALL OTHERS SIMILARLY SITUATED,
16-cv-05891 (JGK)
Plaintiff,
OPINION AND ORDER
- against –
E*TRADE FINANCIAL CORPORATION ET AL,
Defendants.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
This is a securities action brought by the lead plaintiff,
Charles L. Schwab (the “plaintiff”), on behalf of a proposed
class of clients of E*TRADE Securities LLC (“E*TRADE”) who
placed securities trade orders with the broker-dealer between
July 11, 2011 and the present (the “Class Period”). In Count
One, the plaintiff asserts violations of Section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (the
“Exchange Act”), and Rule 10b-5 promulgated thereunder, 17
C.F.R. § 240.10b–5, against E*TRADE and E*TRADE Financial
Corporation (“E*TRADE Financial”) (collectively, the “corporate
defendants”). In Count Two, the plaintiff asserts control person
liability under Section 20(a) of the Exchange Act, 15 U.S.C.
§ 78t(a), against Paul T. Idzik (“Idzik”), the former Chief
Executive Officer of E*TRADE Financial, and Karl A. Roessner
(“Roessner”), the current Chief Executive Officer of E*TRADE
Financial (collectively, the “individual defendants”).
1

In a Memorandum Order and Opinion dated April 3, 2017, this
Court dismissed common law claims against E*TRADE and E*TRADE
Financial that arose out of the same conduct at issue here
because those claims were precluded by the Securities Litigation
Uniform Standards Act (the “SLUSA”). See Rayner v. E*TRADE Fin.
Corp., No. 16-CV-7129 (JGK), 2017 WL 1232730, at *7 (S.D.N.Y.
Apr. 3, 2017), appeal docketed, No. 17-1487 (2d Cir. May 8,
2017). Familiarity with that decision is presumed.
The defendants have moved to dismiss the Second Amended
Complaint (the “SAC”) for failure to state a claim pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure. This
Court has subject matter jurisdiction pursuant to 15 U.S.C.
§ 78aa and 28 U.S.C. § 1331.
For the following reasons, the motion is granted.
I.
In deciding a motion to dismiss pursuant to Rule 12(b)(6)
of the Federal Rules of Civil Procedure, the allegations in the
complaint are accepted as true, and all reasonable inferences
must be drawn in the plaintiffs’ favor. McCarthy v. Dun &
Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court’s
function on a motion to dismiss is “not to weigh the evidence
that might be presented at a trial but merely to determine
whether the complaint itself is legally sufficient.” Goldman v.
Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). A complaint should
2

not be dismissed if the plaintiffs have stated “enough facts to
state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has
facial plausibility when the plaintiff[s] plead[] factual
content that allows the court to draw the reasonable inference
that the defendant[s] [are] liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While factual
allegations should be construed in the light most favorable to
the plaintiffs, “the tenet that a court must accept as true all
of the allegations contained in a complaint is inapplicable to
legal conclusions.” Id.
A claim under Section 10(b) of the Securities Exchange Act
sounds in fraud and must meet the pleading requirements of Rule
9(b) of the Federal Rules of Civil Procedure and of the Private
Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u–
4(b). Rule 9(b) requires that the complaint “(1) specify the
statements that the plaintiff[s] contend[] were fraudulent,
(2) identify the speaker, (3) state where and when the
statements were made, and (4) explain why the statements were
fraudulent.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d
87, 99 (2d Cir. 2007). The PSLRA similarly requires that the
complaint “specify each statement alleged to have been
misleading [and] the reason or reasons why the statement is
misleading,” and it adds the requirement that “if an allegation
3

regarding the statement or omission is made on information and
belief, the complaint shall state with particularity all facts
on which that belief is formed.” 15 U.S.C. § 78u–4(b)(1); ATSI,
493 F.3d at 99.
When presented with a motion to dismiss pursuant to Rule
12(b)(6), the Court may consider documents that are referenced
in the complaint, documents that the plaintiffs relied on in
bringing suit and that are either in the plaintiffs’ possession
or that the plaintiffs knew of when bringing suit, or matters of
which judicial notice may be taken. See Chambers v. Time Warner,
Inc., 282 F.3d 147, 153 (2d Cir. 2002). The Court can take
judicial notice of public disclosure documents that must be
filed with the SEC and documents that both “bear on the
adequacy” of SEC disclosures and are “public disclosure
documents required by law.” Kramer v. Time Warner, Inc., 937
F.2d 767, 773–74 (2d Cir. 1991); see also In re Eletrobras Sec.
Litig., No. 15-CV-5754 (JGK), 2017 WL 1157138, at *1-2 (S.D.N.Y.
Mar. 27, 2017).
II.
The following facts are undisputed or accepted as true for
purposes of the defendants’ motion to dismiss.
E*TRADE Financial is a Delaware corporation, with its
principal place of business in New York, that provides brokerage
and related services to individual retail investors. SAC ¶ 21.
4

E*TRADE is a Delaware limited liability company that is a wholly
owned subsidiary of E*TRADE Financial. 1 SAC ¶ 22. Before 2014,
E*TRADE was an operating subsidiary of E*TRADE Bank, which is
also a subsidiary of E*TRADE Financial. SAC ¶ 22. E*TRADE is a
broker-dealer registered with the United States Securities and
Exchange Commission (the “SEC”), and is the primary provider of
brokerage products and services to E*TRADE Financial’s
customers. SAC ¶ 22.
Idzik was the CEO and a director of E*TRADE Financial from
January 22, 2013 through his departure on September 12, 2016.
SAC ¶ 23; see also Form 8-K dated January 17, 2013. 2
From May 2009 to September 12, 2016, Roessner served as the
Executive Vice President and General Counsel of E*TRADE. SAC ¶
24. On September 12, 2016, Roessner became the CEO and a
director of E*TRADE Financial, and the President of E*TRADE
Bank. Form 8-K dated September 12, 2016; see also SAC ¶ 24.
Brokers, such as E*TRADE, can route orders for execution to
third-party venues, such as exchanges and market makers. SAC ¶
3. A “non-directed order” is a standard type of order that a
client can place with E*TRADE where E*TRADE (as opposed to the
1

The SAC alleges that “E*TRADE Financial is liable for all
statements made by E*TRADE because E*TRADE[’s] statements at all
relevant times were attributable to, controlled by, and authored
by E*TRADE Financial,” SAC ¶ 59, which the defendants do not
dispute.
2
All filings with the SEC cited in this Opinion and Order refer
to filings by E*TRADE Financial unless otherwise noted.
5

client) chooses the trading venue for the order. SAC ¶ 7. The
SAC alleges that “over 95 percent of orders placed with E*TRADE
are non-directed.” SAC ¶ 7.
According to the SAC, E*TRADE has two primary sources of
revenue: the commissions that its customers pay in exchange for
routing orders and the payments for order flow (“Payments for
Order Flow” or “PFOF”) that it receives from venues under the
“maker-taker” model. SAC ¶¶ 30, 87. Under the maker-taker model,
venues pay brokerage firms for “making” a market or adding
liquidity for certain types of orders, while venues charge
brokers an access or “take” fee for matching a marketable order
with an existing bid or offer. SAC ¶ 30. The SAC alleges that
venues compete for order flow by maximizing PFOF amounts to
brokers, such as E*TRADE. SAC ¶ 30.
The maker-taker model, including the receipt of PFOF, is
heavily regulated by the federal securities regime. See, e.g.,
Regulation NMS, Exchange Act Release No. 34–51808, 2005 WL
1364545 (June 9, 2005); see also Rayner, 2017 WL 1232730, at *3.
There is no allegation that the receipt of PFOF is inherently
wrongful; indeed, the SEC permits broker-dealers to receive PFOF
subject to certain disclosure requirements. 17 C.F.R. § 240.10b10(a)(2)(i)(C); see also Exchange Act Rule 606, 17 C.F.R.
§ 242.606 (requiring the disclosure of quarterly reports related
to the receipt of PFOF).
6

E*TRADE has a duty of best execution, which, among other
things, requires it to “use reasonable diligence to ascertain
the best market for the subject security and buy or sell in such
market so that the resultant price to the customer is as
favorable as possible under prevailing market conditions.” FINRA
Rule 5310(a)(1) 3; see also SAC ¶¶ 39-41, 43-44.
The gist of the allegations in the SAC is that E*TRADE
repeatedly assures the market that it will execute orders
consistent with its duty of best execution even though it has no
intention of delivering on those promises. The SAC alleges that
E*TRADE is actually pursuing a routing strategy designed to
maximize the receipt of PFOF, which results in the delivery of
something less than best execution and thus less advantageous
prices for its clients. See SAC ¶¶ 1, 41, 92.
The SAC in particular faults “predetermined routing
agreements” between E*TRADE and other venues in which E*TRADE
agrees to route a certain percentage of its orders to a venue in
exchange for PFOF. Such agreements allegedly lock E*TRADE into
providing order flow to the venue regardless of best execution
considerations. SAC ¶¶ 12, 63.
The SAC alleges that E*TRADE’s use of such agreements began
before the Class Period. In November 2007, E*TRADE agreed to
3

FINRA Rule 5310 superseded NASD Rule 2320 on May 31, 2012, and
incorporates NASD Rule 2320’s provisions concerning a brokerdealer’s duty of best execution. See SAC ¶¶ 44, 90.
7

route 40% of its customer equities orders to Citadel Securities
LLC, an affiliate of Citadel Investment Group (“Citadel”), for
three years. SAC ¶ 66. Once the agreement (the “Citadel
Agreement”) expired, the SAC alleges that E*TRADE decreased the
proportion of orders routed to Citadel Securities, which the SAC
claims implicates E*TRADE’s knowledge that such arrangements are
inconsistent with best execution. SAC ¶¶ 100, 107.
Citadel Securities’ order handling practices during this
period have drawn regulatory scrutiny. See SAC ¶¶ 101-05.
According to a 2017 Consent Order with the SEC, from 2007
through 2010, Citadel Securities implemented certain routing and
internalization practices that resulted in worse prices for
retail marketable orders. In the Matter of Citadel Sec. LLC
Respondent., Release No. 10280, at *6-7 (Jan. 13, 2017). While
the Consent Order found that Citadel Securities misrepresented
these practices to retail broker-dealers, id. at *3, the SAC
faults the defendants for failing to detect the issue in their
own independent review of the orders routed to Citadel
Securities by E*TRADE. SAC ¶¶ 106-07.
According to the SAC, E*TRADE has had similarly problematic
routing arrangements with another wholesale market-maker, G1
Execution Services, LLC (“G1X”), that began before the Class

8

Period and has continued through the present. 4 SAC ¶¶ 9, 64.
Those arrangements are the focus of this action. Acquired in
2001, G1X was a subsidiary of E*TRADE Financial until February
2014. SAC ¶ 64; Form 8-K dated February 10, 2014. According to
the SAC, “When E*TRADE routes its clients’ orders to G1X, the
market maker first seeks to match the orders with G1X’s internal
liquidity before searching other market makers, exchanges, and
alternative trading systems” for matches. SAC ¶ 64.
Pursuant to a director appointment provision in the Citadel
Agreement, Citadel appointed its founder and CEO, Kenneth C.
Griffin (“Griffin”), to E*TRADE Financial’s Board of Directors
in June 2009. SAC ¶ 67. In 2012, Griffin raised concerns to the
Board regarding the quality of the execution of orders routed by
E*TRADE to G1X, “prompt[ing]” E*TRADE Financial to disclose in
October 2012 that it had “initiated a review of order handling
practices and pricing for order flow between E*TRADE Securities
LLC and [G1X] . . . to ensure that E*TRADE Securities [was]
providing ‘best execution’ of customer orders and dealing
appropriately with [G1X] under applicable regulatory standards.”
2012 Third Quarter Form 10-Q at 109; SAC ¶¶ 68, 70.

4

G1X was named “E*TRADE Capital Market, LLC” before February
2013. See 2012 Form 10-K at 1; see also SAC ¶ 64. For
convenience, the entity is referred to only as G1X in this
Opinion and Order.
9

In February 2013, E*TRADE Financial disclosed that it had
completed its review, which identified “shortcomings in [E*TRADE
Financial’s] historical methods of measuring best execution
quality.” 2012 Form 10-K at 17; SAC ¶ 71. E*TRADE Financial
announced that it would implement recommended “additions and
changes” to its “standards, processes and procedures for
measuring execution quality . . . .” 2012 Form 10-K at 17.
In March 2013, Griffin resigned from the Board. SAC ¶ 70.
In July 2013, FINRA “notified E*TRADE [] and [G1X] that it [was]
conducting an examination of both firms’ routing practices.” SAC
¶ 76. FINRA eventually sent E*TRADE Financial a Wells Notice in
2015 “relating to the adequacy of E*TRADE Securities’ orderrouting disclosures and supervisory process for reviewing
execution quality during the period covered by [E*TRADE
Financial’s] 2012 internal review (July 2011 - June 2012).” 2015
Second Quarter Form 10-Q at 74; SAC ¶ 77. In June 2016, FINRA
announced that it had censured and fined E*TRADE Financial
$900,000 (the “FINRA Censure and Fine”) for failing to conduct
an adequate review of the quality of execution for its
customers’ orders and for supervisory deficiencies concerning
the protection of customer order information. 5 SAC ¶ 78.

5

FINRA’s announcement is available at
http://www.finra.org/newsroom/2016/finra-fines-etrade-900k-bestexecution-and-protection-customer-order-information.
10

In the aftermath of the 2012 internal review and amidst the
FINRA inquiry, the plaintiff alleges that E*TRADE Financial
decided to sell G1X. SAC ¶ 72. On an earnings call dated July
24, 2013, then-E*TRADE Financial CFO Matthew Audette (“Audette”)
attributed the desire to sell G1X to “operational and
regulatory” risks. Transcript of 2013 Second Quarter Earnings
Call dated July 24, 2013 at 8; SAC ¶ 72.
E*TRADE Financial sold G1X to an affiliate of the
Susquehanna International Group LLP (“Susquehanna”) on February
10, 2014. Form 8-K dated February 10, 2014; SAC ¶ 74. However,
the plaintiff alleges that the divestment did not end E*TRADE’s
perverse entanglement with G1X: E*TRADE Financial disclosed
contemporaneous with the sale that it and Susquehanna had
“entered into an order flow agreement” (the “G1X Agreement”) to
“route 70 percent of our customer equity flow to [G1X] over the
next five years, subject to best execution standards.” Form 8-K
dated February 10, 2014; SAC ¶ 74.
Based on E*TRADE’s disclosures pursuant to Exchange Act
Rule 606, the SAC alleges that E*TRADE routes a disproportionate
number of orders to G1X and other venues that pay “excessive
fees and rebates” for order flow, a practice that cannot be
explained unless E*TRADE is discounting its promises to provide
best execution in favor of maximizing the receipt of PFOF and
its obligations under the G1X Agreement to route a certain
11

percentage of orders to G1X. SAC ¶¶ 63, 83-85, 89, 93, 98-99,
120.
The allegations are bolstered by third-party industry and
academic studies that have concluded that a broker-dealer’s
focus on obtaining the highest amount of PFOF tends to interfere
with best execution. See SAC ¶¶ 112-128. In particular, the SAC
alleges that the “Battalio Study” concluded based on a
multivariate analysis of proprietary broker-dealer data that
E*TRADE is a broker-dealer (among others, such as TD Ameritrade)
that is routing orders with a “focus on liquidity rebates,”
which is inconsistent with best execution standards. SAC ¶ 113.
The plaintiff also points to testimony before Congress by
industry members to the effect that routing strategies designed
to maximize PFOF conflict with best execution. SAC ¶¶ 109, 115.
As a general matter, FINRA and the SEC have expressed concerns
over whether PFOF create conflicts of interest that compromise
execution quality. See SAC ¶¶ 132-134.
According to the SAC, the defendants have repeatedly
misrepresented E*TRADE’s adherence to best execution standards.
E*TRADE’s customer agreement --- which is posted on its website
and provided to each of its customers --- states:
Consistent with the overriding principle of best
execution, E*TRADE, using a computerized system,
routes orders for listed and over-the-counter equity
securities and options to market centers, including
regional
exchanges,
securities
dealers
who
make
12

markets
over-the-counter
and
alternative
trading
systems. E*TRADE takes a number of factors into
consideration in determining where to route customers’
orders, including the speed of execution, price
improvement
opportunities
(executions
at
prices
superior to the then prevailing inside market),
automatic execution guarantees, the availability of
efficient and reliable order handling systems, the
level of service provided, the cost of executing
orders, whether it will receive cash or non-cash
payments
for
routing
order
flow
and
reciprocal
business
arrangements.
E*TRADE
regularly
and
rigorously reviews its order-routing practices and the
execution quality obtained from market centers to
which it routes orders.
SAC ¶ 51 (emphasis added); see also SAC ¶ 52. Although
E*TRADE discloses that it will consider a list of factors --including the receipt of PFOF and reciprocal business
arrangements --- in making its order routing determinations, the
SAC alleges that the list is false and misleading because
E*TRADE actually prioritizes those two factors to the exclusion
of the rest. The SAC chronicles other alleged misrepresentations
on E*TRADE’s website related to “The E*TRADE Best Execution
Advantage.” SAC ¶ 48; see also, e.g., SAC ¶ 49. Similarly, on
earnings calls, Idzik emphasized “[E*TRADE’s] focus on
delivering the best possible execution,” SAC ¶ 56, and the
company’s rigorous and regular review of data to ensure best
execution adherence, SAC ¶ 55.
The SAC alleges that statements in the 2013 and 2014 annual
reports, and by Audette, that E*TRADE agreed under the G1X
Agreement to route order flow to G1X “subject to best execution
13

standards,” SAC ¶¶ 53-54, are false because the Agreement is not
actually subject to best execution standards. The SAC also
faults as misleading statements in those annual reports that
E*TRADE has an Order Routing and Best Execution Committee
(“ORBEC”) that is “responsible for evaluating [E*TRADE’s]
execution statistics and order-routing determinations for stock
and listed options and determining how, if at all, [E*TRADE]
will alter its order-routing methodology to improve execution
quality,” and that “also reviews order flow rates and payments
received from [G1X] and other unaffiliated market centers for
comparable order flow directed to them.” SAC ¶ 50.
The plaintiff is a resident of California who has been a
client of E*TRADE throughout the Class Period. SAC ¶ 20. The
plaintiff alleges that, during the Class Period, he placed nondirected orders with E*TRADE that received worse prices than
what he would have received had E*TRADE adhered to its best
execution promises. SAC ¶¶ 20, 149-73.
The SAC alleges that E*TRADE has generated hundreds of
millions of dollars by preferring PFOF in dereliction of its
best execution promises. SAC ¶¶ 10, 86.

14

III.
The defendants have moved to dismiss the 10(b) and 10b-5
claims for failure to plead reliance or scienter. 6
Section 10(b), as effectuated by Rule 10b-5, makes it
“unlawful for any person . . . [t]o make any untrue statement of
a material fact or to omit to state a material fact necessary in
order to make the statements made, in the light of the
circumstances under which they were made, not misleading.” 17
C.F.R. § 240.10b–5(b). To state a claim under Section 10(b) and
Rule 10b-5, the plaintiff must allege that the defendants, in
connection with the purchase or sale of securities, made a
materially false statement or omitted a material fact, with
scienter, and that the plaintiff’s reliance on the defendants'
action caused injury to the plaintiffs. Ganino v. Citizens
Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000); see also In re
Lions Gate Entm’t Corp. Sec. Litig., 165 F. Supp. 3d 1, 10
(S.D.N.Y. 2016).
A.
“Reliance by the plaintiff upon the defendant’s deceptive
acts is an essential element of the § 10(b) private cause of

6

In light of the disposition of this opinion, it is unnecessary
to reach the defendants’ alternative arguments for dismissal
related to the timeliness of the claims and the falsity of the
alleged misrepresentations.
15

action.” Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc.,
552 U.S. 148, 159 (2008).
The plaintiff argues that he should be allowed to rely on
the Affiliated Ute presumption of reliance under which “if there
is an omission of a material fact by one with a duty to
disclose, the investor to whom the duty was owed need not
provide specific proof of reliance.” 7 Id. (citing Affiliated Ute
Citizens of Utah v. United States, 406 U.S. 128, 153-54 (1972)).
Under the Affiliated Ute presumption, for claims “involving
primarily a failure to disclose, positive proof of reliance is
not a prerequisite to recovery.” Starr ex rel. Estate of Sampson
v. Georgeson S’holder, Inc., 412 F.3d 103, 109 n.5 (2d Cir.
2005) (quoting Affiliated Ute, 406 U.S. at 153).
“The claims here, however, are not ‘primarily’ omission
claims.” Id. The court in Crago v. Charles Schwab & Co., No. 16CV-03938 (RS), 2017 WL 2540577, at *8 (N.D. Cal. June 12, 2017),
recently addressed similar claims against the retail brokerdealer Charles Schwab & Co., Inc. (“Charles Schwab”), and
concluded that the Affiliated Ute presumption was inapplicable
to those claims because they were based on misrepresentations,
7

The plaintiff does not attempt to plead the fraud-on-the-market
presumption identified in Basic Inc. v. Levinson, 485 U.S. 224
(1988). See also Newton v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 259 F.3d 154, 175 (3d Cir. 2001), as amended (Oct.
16, 2001); Last Atlantis Capital LLC v. Chicago Bd. Options
Exch., Inc., 455 F. Supp. 2d 788, 800-01 & n.16 (N.D. Ill.
2006).
16

not omissions. Crago is persuasive on this point. The gravamen
of the plaintiff’s claims in this case is that the defendants
disclosed that E*TRADE considered PFOF and reciprocal business
arrangements in making order routing determinations, but that
the disclosures made it seem like those were only two factors
among many, not the decisive factors that compromised the best
execution promises. The plaintiff claims that the defendants’
best execution representations were false because E*TRADE’s
routing decisions were, in fact, not subject to best execution.
While the plaintiff argues that the purported misrepresentations
should be construed as omissions, the “alleged omissions . . .
are simply the flip side of the affirmative misstatements,”
which is insufficient to invoke Affiliated Ute. Teamsters Local
445 Freight Div. Pension Fund v. Bombardier, Inc., No. 05 CIV.
1898 (SAS), 2006 WL 2161887, at *9 (S.D.N.Y. Aug. 1, 2006),
aff’d, 546 F.3d 196 (2d Cir. 2008); see also, e.g., In re
Barclays Liquidity Cross & High Frequency Trading Litig., 126 F.
Supp. 3d 342, 365-66 (S.D.N.Y. 2015); Carpenters Pension Trust
Fund of St. Louis v. Barclays PLC, 310 F.R.D. 69, 98 (S.D.N.Y.
2015).
Moreover, the plaintiff has failed to detail any omissions
in the SAC. The plaintiff therefore cannot rely on any omissions
because they are not alleged with particularity. See, e.g., In
re Harbinger Capital Partners Funds Inv’r Litig., No. 12-CV-1244
17

(AJN), 2015 WL 1439520, at *13 (S.D.N.Y. Mar. 30, 2015);
Morrison v. Hoffmann-La Roche, Inc., No. 14-cv-4476 (DLI), 2016
WL 5678546, at *9 (E.D.N.Y. Sept. 29, 2016). The allegations are
clear that this is primarily an affirmative misrepresentation
case to which the Affiliated Ute presumption is inapplicable.
See, e.g., SAC ¶¶ 1, 5, 11, 89. The plaintiff’s opposition
papers are similarly clear that the plaintiff himself conceives
of this case as one about affirmative misrepresentations: the
plaintiff argues that he “relied on Defendants’
misrepresentations to provide best execution when deciding to
use E*TRADE to execute his securities trades.” Pl.’s Mem. Op. at
1; see also Pl.’s Mem. Op. at 2-4.
The cases cited by the plaintiff for the proposition that
reliance can be presumed where a company is “silent” about its
“illegal activity,” see, e.g., In re Initial Pub. Offering Sec.
Litig., 241 F. Supp. 2d 281, 382 (S.D.N.Y. 2003), are
inapplicable because the defendants were not silent about their
best execution obligations. To the contrary, under the
plaintiff’s theory, the defendants were quite noisy about those
obligations. The best execution representations were ubiquitous.
See Crago, 2017 WL 2540577, at *8 (“This is not a case in which
a lack of positive statements necessitates a presumption of
reliance; plaintiffs identify multiple alleged
misrepresentations.”).
18

Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259
F.3d 154 (3d Cir. 2001), does not aid the plaintiff because that
case involved allegations of reliance on an “implied
representation of the duty of best execution,” in other words,
an omission. Id. at 173. The case involved “material
nondisclosure.” Id. Here, the plaintiff does not allege that he
relied on any implied representation, but instead that he relied
upon affirmative misrepresentations.
The plaintiff also places great weight on the allegation
that E*TRADE’s practice is “uniform” with respect to its
clients, SAC ¶ 61, but that does not alter the fact that this
case involves primarily misrepresentations.
Without a presumption of reliance, the plaintiff must
allege reasonable reliance on the alleged misrepresentations.
That pleading bar “only requires allegations that ‘but for the
claimed misrepresentations or omissions, the plaintiff would not
have entered into the detrimental securities transaction.’”
ATSI, 493 F.3d at 106 (quoting Lentell v. Merrill Lynch & Co.,
396 F.3d 161, 172 (2d Cir. 2005)); see also Erica P. John Fund,
Inc. v. Halliburton Co., 563 U.S. 804, 810 (2011) (“[A]
plaintiff can demonstrate reliance . . . by showing that he was
aware of a company’s statement and engaged in a relevant
transaction . . . based on that specific misrepresentation.”).

19

Amazingly, the plaintiff fails to clear that threshold. The
plaintiff’s allegations of detrimental reliance are entirely
conclusory, see SAC ¶¶ 14, 62, 192, and fail to show with any
sort of particularity that the plaintiff was aware --- whether
by reading, hearing, or otherwise --- of any of the challenged
misstatements when he traded with E*TRADE. See Crago, 2017 WL
2540577, at *7 (rejecting conclusory allegations as insufficient
to plead reliance); Last Atlantis Capital LLC v. Chicago Bd.
Options Exch., Inc., 455 F. Supp. 2d 788, 799-801 & nn.13-15
(N.D. Ill. 2006) (dismissing claims based on alleged
misstatements by exchange-defendants with respect to order
execution because “[p]laintiffs do not allege that any
plaintiff, let alone all of the plaintiffs, read these
statements and were misled by them”); cf. In re Fannie Mae 2008
Sec. Litig., 891 F. Supp. 2d 458, 477 (S.D.N.Y. 2012), aff’d,
525 F. App’x 16 (2d Cir. 2013) (summary order). The plaintiff’s
allegation that he “would” have used another broker had he known
that E*TRADE was not delivering best execution is insufficient
to establish awareness of a specific misrepresentation. See In
re Lehman Bros. Sec. & ERISA Litig., No. 09 MD 2017 (LAK), 2013
WL 5730020, at *1, *4 (S.D.N.Y. Oct. 22, 2013).
The cases cited by the plaintiff do not suggest a different
result. Zola v. TD Ameritrade, Inc., 172 F. Supp. 3d 1055, 106467 (D. Neb. 2016), allowed similar securities fraud claims to
20

proceed against the retail-broker dealer TD Ameritrade. But Zola
did not address whether the plaintiff there had pleaded
reliance, and thus does not aid the plaintiff here. Pearce v.
UBS PaineWebber, Inc., No. 3:02-2409-17, 2003 WL 25518056, at
*1-2, *12 (D.S.C. Nov. 4, 2003), involved allegations of a
direct misrepresentation by the defendant-broker to the
plaintiff on which the plaintiff relied. In re UBS Auction Rate
Sec. Litig., No. 08-cv-2967, 2010 WL 2541166 (S.D.N.Y. June 10,
2010), is not analogous because that case involved claims of
market manipulation that required only allegations of “reliance
on an assumption of an efficient market free of manipulation.”
Id. at *22 (citations omitted); see also id. at *24. In re Smith
Barney Transfer Agent Litig., 290 F.R.D. 42 (S.D.N.Y. 2013), is
likewise distinguishable because that case involved disclosures
that the court found to be truthful. The court found that the
plaintiffs’ claims “involve[d] primarily a failure to disclose.”
Id. at 48 (citing Affiliate Ute, 406 U.S. at 153). In this case,
the plaintiff relies throughout the SAC on alleged
misrepresentations.
Therefore, the plaintiff’s claim in Count One for a
violation of Section 10(b) and Rule 10b-5 must be dismissed
without prejudice for failure to plead reliance. However, it is
plain that the plaintiff’s reliance on any purported
misrepresentations could not be justified after he filed this
21

action on July 22, 2016. Any claims based on trades that
occurred after that date are accordingly dismissed with
prejudice.
B.
The allegations are also insufficient to establish that the
corporate defendants acted with corporate scienter.
The scienter required to support a securities fraud claim
can be “intent to deceive, manipulate, or defraud, or at least
knowing misconduct.” SEC v. First Jersey Sec., Inc., 101 F.3d
1450, 1467 (2d Cir. 1996) (citations omitted). The PSLRA
requires that a complaint alleging securities fraud “state with
particularity facts giving rise to a strong inference that the
defendant[s] acted with the required state of mind.” 15 U.S.C.
§ 78u-4(b)(2). Scienter may be inferred from (i) facts showing
that a defendant had “both motive and opportunity to commit the
fraud,” or (ii) facts that constitute “strong circumstantial
evidence of conscious misbehavior or recklessness.” ATSI, 493
F.3d at 99.
In order to plead scienter adequately, the plaintiff must
allege facts supporting a strong inference with respect to each
defendant. See Plumbers & Pipefitters Local Union No. 630
Pension–Annuity Tr. Fund v. Arbitron Inc., 741 F. Supp. 2d 474,
488 (S.D.N.Y. 2010). “[I]n determining whether the pleaded facts
give rise to a ‘strong’ inference of scienter, the court must
22

take into account plausible opposing inferences.” Tellabs, Inc.
v. Makor Issues & Rights, Ltd., 551 U.S. 308, 323 (2007). A
complaint sufficiently alleges scienter 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.” Id. at 324; see also Slayton v. Am. Express Co.,
604 F.3d 758, 766 (2d Cir. 2010).
To raise a strong inference of scienter through motive and
opportunity to defraud, a plaintiff must allege that the
defendants “‘benefitted in some concrete and personal way from
the purported fraud.’” ECA, Local 134 IBEW Joint Pension Trust
of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir.
2009) (quoting Novak v. Kasaks, 216 F.3d 300, 307–08 (2d Cir.
2000)). “Motives that are common to most corporate officers,
such as the desire for the corporation to appear profitable and
the desire to keep stock prices high to increase officer
compensation, do not constitute ‘motive’ for purposes of this
inquiry.” Id. Motive is generally shown by alleging that
corporate insiders made the misrepresentation in order to sell
their own shares at a profit. Id.
Where the defendants’ motive to commit fraud is not
apparent, “the strength of the circumstantial allegations [that
a defendant consciously or recklessly misbehaved] must be
correspondingly greater.” Kalnit v. Eichler, 264 F.3d 131, 142
23

(2d Cir. 2001) (citation and internal quotation marks omitted).
Plaintiffs typically allege conscious or reckless misbehavior by
pleading with specificity that the defendants had “knowledge of
facts or access to information contradicting their public
statements.” Novak, 216 F.3d at 308. As the Court of Appeals for
the Second Circuit has explained, “[r]eckless conduct is, at the
least, conduct which is highly unreasonable and which represents
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.”
Chill v. Gen. Elec. Co., 101 F.3d 263, 269 (2d Cir. 1996)
(alterations in original) (citation and internal quotation marks
omitted); see also In re Lions Gate, 165 F. Supp. 3d at 22–23.
“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.” Teamsters Local 445 Freight Div. Pension
Fund v. Dynex Capital Inc., 531 F.3d 190, 195 (2d Cir. 2008).
“[I]t is possible to plead corporate scienter by pleading facts
sufficient to create a strong inference either (1) that ‘someone
whose intent could be imputed to the corporation acted with the
requisite scienter’ or (2) that the statements ‘would have been
approved by corporate officials sufficiently knowledgeable about
the company to know’ that those statements were misleading.”
24

Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797
F.3d 160, 177 (2d Cir. 2015) (citation omitted); see also Lipow
v. Net1 UEPS Techs., Inc., 131 F. Supp. 3d 144, 160 (S.D.N.Y.
2015).
The plaintiff attempts to impute scienter to the corporate
defendants by alleging that Idzik and Roessner acted with
scienter, or, in the alternative, that unidentified individuals
within the corporate defendants acted with scienter.
Taken as a whole, the allegations of scienter fall short
with respect to the individual defendants.
Beginning with Idzik, the plaintiff makes no effort to
plead that he had a motive to make false best execution
promises, and the allegations of reckless misbehavior are
insufficient. Missing from the case is the connective tissue
that could link Idzik to any information that would lead to a
compelling and cogent inference of scienter.
The plaintiff rests his claims on the theory that Idzik
must have known that the best execution promises were going
unfulfilled, or at least had access to best execution data that
would reveal that fact, by virtue of his position as CEO, but
“boilerplate allegations that defendants knew or should have
known of fraudulent conduct based solely on their board
membership or executive positions are insufficient to plead
scienter.” In re Sotheby’s Holdings, Inc. Secs. Litig., No. 00
25

CIV. 1041 (DLC), 2000 WL 1234601, at *7 (S.D.N.Y. Aug. 31,
2000); see also Glaser v. The9, Ltd., 772 F. Supp. 2d 573, 588
(S.D.N.Y. 2011).
The arguments that Idzik failed to monitor E*TRADE’s
trading algorithms, “the terms of the G1X Agreement” (presumably
in so far as they could conflict with the best execution
representations), and execution quality, Pl.’s Mem. Op. at 18,
suffer from the same flaw. There is no allegation about Idzik’s
role in monitoring any of these items (let alone that he acted
recklessly in fulfilling any such duty) beyond the allegation
that he was CEO. See Fogel v. Wal-Mart de Mexico SAB de CV, No.
13 CIV. 2282 (KPF), 2017 WL 751155, at *16 (S.D.N.Y. Feb. 27,
2017) (declining the plaintiff’s invitation to speculate that
subordinates must have conveyed contrary information to a
defendant because the defendant was a high ranking officer);
Crago, 2017 WL 2540577, at *5. Indeed, the plaintiff alleges
that ORBEC was responsible for monitoring best execution, but
does not allege that Idzik served on ORBEC or any other
committee responsible for evaluating best execution.
There is similarly no allegation from which to infer that
Idzik had any reason to believe that ORBEC was not regularly and
rigorously reviewing order flow data to ensure that E*TRADE was
complying with its best execution representations. While the SAC
notes that Griffin instigated the 2012 internal review, the
26

plaintiff does not raise that issue in his briefing. Moreover,
the allegations regarding improper practices by E*TRADE occurred
before Idzik’s arrival as CEO in January 2013, and there is no
allegation from which to conclude that Idzik did not believe
that the issues that concerned Griffin with respect to execution
quality had been solved by the “additions and changes” to
E*TRADE’s “standards, processes and procedures for measuring
execution quality,” as disclosed in the 2012 Form 10-K. There is
no allegation from which to infer that Griffin’s subsequent
resignation from the Board of Directors in March 2013 was
“noisy” in that it was designed to alert an executive like Idzik
that execution quality issues remained outstanding.
For the same reason, the FINRA Censure and Fine of E*TRADE
for events that occurred from July 2011 to June 2012 cannot be
used to attribute scienter to Idzik. The fact that the alleged
misconduct with respect to best execution predates Idzik’s
arrival as CEO (indeed, much of the misconduct is alleged to
predate the Class Period) further undermines any inference of
culpability as to Idzik. See Shemian v. Research In Motion Ltd.,
No. 11 CIV. 4068 (RJS), 2013 WL 1285779, at *16 (S.D.N.Y. Mar.
29, 2013), aff’d, 570 F. App’x 32 (2d Cir. 2014) (summary
order).
Similarly, regulatory statements and notices highlighting
generic concerns that a broker-dealer’s receipt of PFOF may be
27

inconsistent with best execution do not support the leap that
Idzik must have been aware that E*TRADE’s treatment of PFOF was
inconsistent with its best execution obligations. See Gurfein v.
Ameritrade, Inc., 411 F. Supp. 2d 416, 426 (S.D.N.Y. 2006); Last
Atlantis, 455 F. Supp. 2d at 795. The same is true for any
regulatory actions against E*TRADE or G1X that dealt with
subject matters unrelated to best execution.
The plaintiff argues that third-party studies at least
alerted Idzik to the obvious danger that E*TRADE was not
complying with best execution standards. A plaintiff may
establish scienter by “specifically identify[ing] the reports or
statements that are contradictory to the statements made
. . . .” Glaser, 772 F. Supp. 2d at 588 (citations omitted). The
flaw in the plaintiff’s allegations is that there is nothing
particularized to link Idzik to any such report. There is no
allegation that Idzik actually reviewed, for example, the
Battalio Report, or, if he did, what actions he took in response
that would evidence reckless disregard. See, e.g., Pearlstein v.
BlackBerry Ltd., 93 F. Supp. 3d 233, 246 (S.D.N.Y. 2015), aff’d
sub nom. Cox v. Blackberry Ltd., 660 F. App’x 23 (2d Cir. 2016)
(summary order); In re Cross Media Mktg. Corp. Sec. Litig., 314
F. Supp. 2d 256, 264 (S.D.N.Y. 2004). There is no internal or
external report cited or other particularized allegation to
suggest that Idzik knew at any point that E*TRADE was delivering
28

something less than best execution. See In re Citigroup Inc.
S’holder Derivative Litig., No. 07 CIV. 9841, 2009 WL 2610746,
at *10 (S.D.N.Y. Aug. 25, 2009).
The plaintiff argues that scienter may be inferred under
the “core operations” doctrine. See, e.g., In re Atlas Air
Worldwide Holdings, Inc. Sec. Litig., 324 F. Supp. 2d 474, 489
(S.D.N.Y. 2004) (“[I]f a plaintiff can plead that a defendant
made false or misleading statements when contradictory facts of
critical importance to the company either were apparent, or
should have been apparent, an inference arises that high-level
officers and directors had knowledge of those facts by virtue of
their positions with the company.”). Whether a plaintiff may
rely on the core operations doctrine in light of the PSLRA has
not been decided by the Court of Appeals for the Second Circuit.
See Frederick v. Mechel OAO, 475 F. App'x 353, 356 & n.5 (2d
Cir. 2012) (summary order). “However, the Second Circuit [has]
commented that the doctrine can ‘provide supplemental support
for allegations of scienter, even if [it] cannot establish
scienter independently.’” In re Pretium Res. Inc. Sec. Litig.,
No. 13-CV-7552 (VSB), 2017 WL 2560005, at *7 (S.D.N.Y. June 13,
2017) (quoting New Orleans Emps. Ret. Sys. v. Celestica, Inc.,
455 F. App’x 10, 14 n.3 (2d Cir. 2011) (summary order)). While
courts in the Second Circuit have questioned the continuing
viability of the doctrine, the majority “consider the ‘core
29

operations’ allegations to constitute supplementary, but not an
independent, means to plead scienter.” Id. (citations omitted).
Applying the majority approach, and treating the core
operations allegations as supplemental, the alleged regulatory
and business importance of E*TRADE’s non-directed order routing
business is insufficient to make the inference of scienter at
least as compelling as any nonculpable inference. The importance
of best execution should have heightened Idzik’s awareness to
any information that would show him that E*TRADE was failing to
deliver on that promise. However, the import of the alleged
misrepresentations cannot substitute for allegations linking
Idzik to information that would alert him that E*TRADE was
delivering something less than best execution. 8 See id. at *13;
Pearlstein, 93 F. Supp. 3d at 247; Tyler v. Liz Claiborne, Inc.,
814 F. Supp. 2d 323, 343 (S.D.N.Y. 2011).
Considering the SAC holistically, the allegations are
insufficient to establish that Idzik acted with scienter.
Moreover, considering the SAC holistically, the scienter
allegations against Roessner are plainly insufficient. There are
no particularized allegations against Roessner other than that
he was the General Counsel and an Executive Vice President of
8

While the plaintiff relies on the finding of scienter against
the CEO in Zola, 172 F. Supp. 3d at 1074, that finding was
apparently based on the application of the “core operations”
doctrine, and it is unclear what other pleading supported the
finding of scienter in that case.
30

E*TRADE from 2009 until he became the CEO of E*TRADE Financial
in September 2016. The plaintiff cannot allege scienter by
merely pointing to Roessner’s job title. In addition, the
plaintiff’s allegations against Roessner appear to be primarily
predicated on the fact that Roessner was a CEO. However, it
follows from the dismissal of any claims based on trades that
occurred on or after July 22, 2016 that Roessner’s service as a
CEO is irrelevant to the scienter analysis. Roessner, as a
General Counsel and Executive Vice President, stands in the same
position as any other unidentified employee within the corporate
defendants who does not necessarily have ultimate authority over
what the corporate defendants said. See In re Pfizer Inc. Sec.
Litig., 819 F.3d 642, 656 (2d Cir. 2016) (“[T]he 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.” (citation and internal quotation marks
omitted)). Without any allegations to connect him to any
wrongdoing, the plaintiff cannot plausibly ascribe scienter to
Roessner, let alone impute his intent to the corporate
defendants. See Silvercreek Mgmt., Inc. v. Citigroup, Inc., No.
02-CV-8881 (JPO), 2017 WL 1207836, at *8 (S.D.N.Y. Mar. 31,
2017) (“[The plaintiff] does not sufficiently connect any of
these individuals to both knowledge of Enron’s wrongdoing and
the dissemination of the misstatements at issue.”).
31

Finally, the plaintiff claims that he can establish
scienter against the corporate defendants based on the scienter
of unidentified individuals within the corporate defendants. In
doing so, the plaintiff eschews any theory that such individuals
acted recklessly, instead arguing that the individuals had a
motive to misrepresent best execution adherence, namely, the
pursuit of millions in PFOF on behalf of the corporate
defendants. While a plaintiff is not required to identify
specifically the individuals at a company who acted with
scienter in order to plead scienter with respect to a company,
see Solow v. Citigroup, Inc., 827 F. Supp. 2d 280, 291 (S.D.N.Y.
2011) (collecting cases), the allegations must still establish
that someone whose intent could be imputed to the corporate
defendants acted with scienter. See Silvercreek Mgmt., 2017 WL
1207836, at *6-7; see also In re Marsh & McLennan Cos., Inc.
Sec. Litig., 501 F. Supp. 2d 452, 481 (S.D.N.Y. 2006) (“While
there is no simple formula for how senior an employee must be in
order to serve as a proxy for corporate scienter, courts have
readily attributed the scienter of management-level employees to
corporate defendants.”). The pursuit of PFOF is the type of
generic profit motive that is insufficient to establish
scienter. See, e.g., Oughtred v. E*Trade Fin. Corp., No. 08 CIV.
3295 (SHS), 2011 WL 1210198, at *7 (S.D.N.Y. Mar. 31, 2011);
Last Atlantis, 455 F. Supp. 2d at 794 (finding no scienter where
32

“[p]laintiffs’ allegations describe a situation in which a
specialist would have a financial motive and the opportunity to
mishandle plaintiffs’ orders in order to trade from their own
proprietary accounts”). 9
The plaintiff has therefore failed to allege plausibly that
any agent of the corporate defendants had a culpable motive that
could be imputed to the corporate defendants. In sum, Count One
must also be dismissed without prejudice for failure to plead
scienter.
IV.
The plaintiff alleges that the individual defendants are
liable under Section 20(a) of the Exchange Act because they
controlled the corporate defendants, which in turn violated
Section 10(b) and Rule 10b-5. Section 20(a) provides:
Every person who, directly, or indirectly, controls
any person liable under any provision of this chapter
or of 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.

9

Zola, 172 F. Supp. 3d at 1074, found that corporate scienter
was adequately pleaded against TD Ameritrade, but is
distinguishable because (among other reasons) the court also
found that the allegations of scienter were sufficient to state
a claim against the company’s CEO.
33

15 U.S.C. § 78t(a). “To establish a prima facie case of control
person liability, a plaintiff must show (1) a primary violation
by the controlled person, (2) control of the primary violator by
the defendant, and (3) that the defendant was, in some
meaningful sense, a culpable participant in the controlled
person’s fraud.” ATSI, 493 F.3d at 108; see also In re Lions
Gate, 165 F. Supp. 3d at 25. In this case, the plaintiff has not
alleged a primary violation of Section 10(b) and Rule 10b-5.
In addition, the plaintiff has failed to allege culpable
participation on the part of the individual defendants. Although
“[t]he Second Circuit has not defined what is meant by the
requirement that a controlling entity be a ‘culpable
participant,’” Pension Comm. of the Univ. of Montreal Pension
Plan v. Banc of Am. Secs., LLC, 592 F. Supp. 2d 608, 635 n.192
(S.D.N.Y. 2009), culpable participation at a minimum “requires
‘something more than negligence,’” In re Alstom SA Secs. Litig.,
406 F. Supp. 2d 433, 490 (S.D.N.Y. 2005) (quoting Ernst & Ernst
v. Hochfelder, 425 U.S. 185, 209 n.28 (1976)). Among the
district courts within the Second Circuit, “[t]he weight of
well-reasoned authority is that to withstand a motion to dismiss
a section 20(a) controlling person liability claim, a plaintiff
must allege some level of culpable participation at least
approximating recklessness in the section 10(b) context.” Edison
Fund v. Cogent Inv. Strategies Fund, Ltd., 551 F. Supp. 2d 210,
34

231 (S.D.N.Y. 2008) (internal quotation marks omitted); see also
Arbitron, 741 F. Supp. at 491–92; accord In re ShengdaTech, Inc.
Sec. Litig., No. 11 CIV. 1918 (LGS), 2014 WL 3928606, at *10 &
n.1 (S.D.N.Y. Aug. 12, 2014) (collecting cases). The plaintiff
has not made this showing with respect to either individual
defendant.
Accordingly, Count Two must also be dismissed without
prejudice.
V.
The plaintiff has asked for leave to replead in the event
the SAC is found deficient. Rule 15(a) provides that leave to
file an amended complaint should be granted “freely . . . when
justice so requires.” Fed. R. Civ. P. 15(a)(2); see also Foman
v. Davis, 371 U.S. 178, 182 (1962) (“Rule 15(a) declares that
leave to amend ‘shall be freely given when justice so requires’;
this mandate is to be heeded.” (citation omitted)). That request
is granted because the plaintiff may be able to cure the
pleading deficiencies in the SAC and it cannot be said that
amendment would be futile. See Loreley Fin, 797 F.3d at 189-91;
Crago, 2017 WL 2540577, at *8 (granting leave to replead).
Conclusion
The Court has considered all of the remaining arguments of
the parties. To the extent not specifically addressed above,
they are either moot or without merit. For the foregoing
35

reasons, the defendants’ motion to dismiss is granted and the
SAC is dismissed without prejudice with respect to any claims
arising before the date this action was filed on July 22, 2016.
The plaintiff may file a third amended complaint within thirty
(30) days of the filing of this Opinion and Order.
The Clerk is directed to close all pending motions.
SO ORDERED.
Dated:

New York, New York
July 10, 2017

_____________/s/______________
John G. Koeltl
United States District Judge

36