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Halbert v. Credit Suisse AG

United States District Court, N.D. Alabama, Southern Division

August 22, 2019

ERICH HALBERT, et al., Plaintiffs,
v.
CREDIT SUISSE AG, et al., Defendants.

          MEMORANDUM OPINION

          ABDUL K. KALLON UNITED STATES DISTRICT JUDGE.

         Erich, Sherri, and John Halbert bring this action against Credit Suisse, AG and Janus Index & Calculation Services, LLC for alleged violations of federal and state securities laws and common law causes of action stemming from a market-wide volatility spike on February 5, 2018. Doc. 45. The Halberts claim Credit Suisse sold them high-risk securities in the days leading up to this volatility spike, but failed to disclose that the Defendants intended to facilitate the collapse of these securities by hedging against them, and then profit off their collapse by redeeming the securities at a fraction of their earlier value. The Halberts also claim that, during a one-hour period when the value of the securities was rapidly falling, the Defendants disseminated misleadingly high estimates of the securities' value. The Defendants have moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc. 52. For the reasons explained below, except for the Alabama Code §§ 8-6-19(a) and (c) claims premised on the alleged misrepresentation of the Intraday Indicative Values and the breach of contract claim against Credit Suisse, and the negligent misrepresentation claim against Janus related to the Intraday Indicative Value, the motion, which is fully briefed and ripe for review, docs. 57, 58, is due to be granted.

         I. STANDARD OF REVIEW

         A. The Relevant Standards

         Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” “[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action” are insufficient. Id. (citations and internal quotation marks omitted). By contrast with Rule 8(a)'s fairly liberal pleading standard, Federal Rule of Civil Procedure 9(b) requires a party to “state with particularity the circumstances constituting fraud or mistake.” Where a party raises claims of fraud, Rule 9(b)'s standard is satisfied if the pleading sets forth:

(1) precisely what statements or omissions were made in which documents or oral representations; (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) them; (3) the content of such statements and the manner in which they misled the plaintiff; and (4) what the defendant obtained as a consequence of the fraud.

FindWhat Inv'r Grp. v. FindWhat.com, 658 F.3d 1282, 1296 (11th Cir. 2011) (citations omitted). Additionally, claims of securities fraud must satisfy the requirement of the Private Securities Litigation Reform Act (PSLRA), which requires a complaint alleging “misleading statements and omissions” to

specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation 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.

         Federal Rule of Civil Procedure 12(b)(6) permits dismissal when a complaint fails to state a claim upon which relief can be granted. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. (citations and internal quotation marks omitted). A complaint states a facially plausible claim for relief “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted). Ultimately, this inquiry is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

         B. What the Court Considers

         Generally, a district court “must convert a motion to dismiss into a motion for summary judgment if it considers materials outside the complaint.” Day v. Taylor, 400 F.3d 1272, 1275-76 (11th Cir. 2005) (citation omitted); see Fed. R. Civ. P. 12(d). However, “the court may consider a document attached to a motion to dismiss without converting the motion into one for summary judgment if the attached document is . . . central to the plaintiff's claim and . . . undisputed, ” meaning “the authenticity of the document is not challenged.” Day, 400 F.3d at 1276 (citation omitted). Similarly, if a “document's contents are alleged in a complaint, ” and the document is “central to the plaintiff's claim” and undisputed, the court may consider it. Id. In determining whether a document is central to the plaintiff's claims, courts consider whether the plaintiff “would have to offer the document to prove his case.” See Lockwood v. Beasley, 221 Fed.Appx. 873, 877 (11th Cir. 2006). Furthermore, the court may take judicial notice of an adjudicative fact “not subject to reasonable dispute” because it is either “generally known within the trial court's territorial jurisdiction” or “can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201.

         The Defendants have attached seven documents to their motion: (1) a sworn affidavit by defense counsel attesting to the authenticity of the other six documents; (2) the January 29, 2018 VelocityShares Pricing Supplement to the Prospectus Supplement dated June 30, 2017 and Prospectus dated June 30, 2017; (3) Credit Suisse's press release dated February 6, 2018; (4) a news article from Reuters published on April 30, 2018; (5) Credit Suisse's press release dated February 14, 2018; (6) data tables purportedly displaying the Intraday Indicative Value for the VelocityShares Daily Inverse VIX Short Term exchange traded notes on February 5, 2018 from 3:30:02 PM to 5:10:00 PM ET; and (7) data tables purportedly displaying the levels of the S&P 500 VIX Short-Term Futures Index (“VIX Futures Index”) on February 5, 2018 from 3:30:02 PM to 5:10:04 PM. See docs. 52-1, 52-2, 52-3, 52-4, 52-5, 52-6, 52-7. The authenticity of all the documents is undisputed. See doc. 57.

         The court finds that the January 29, 2018 Pricing Supplement is “central” to the Halberts' claims because their claims are based on purported misrepresentations and omissions made in this document. Moreover, the court takes judicial notice of the Pricing Supplement because “a court, when considering a motion to dismiss in a securities fraud case, may take judicial notice . . . of relevant public documents required to be filed with the SEC, and actually filed.” Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1278 (11th Cir. 1999).

         However, the remaining documents are neither “central” to the Halberts' claims nor properly subject to judicial notice. Although the February 6, 2018 press release, in which Credit Suisse announced the acceleration event and end of trading for the XIV ETNs, is referenced in the Amended Complaint, see doc. 45 ¶ 33, this document is not “central” because the Halberts would not have to “offer the document to prove [their] case” given there were no alleged misrepresentations in the press release. See Lockwood v. Beasley, 221 Fed.Appx. 873, 877 (11th Cir. 2006). Similarly, the February 14, 2018 press release and the Reuters article are not “central” to the Halberts' claims as they are not referenced anywhere in the Amended Complaint. Furthermore, with respect to the attached data tables, docs. 52-6, 52-7, the Defendants contend that the court can consider “the entirety of this data” and cite to cases in which courts have taken judicial notice of stock prices. See doc. 52 at 25 n.12; see La Grasta v. First Union Sec., Inc., 358 F.3d 840, 842 (11th Cir. 2004), abrogated on other grounds by Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (judicially noticing stock price on the “other days” during the relevant period where the complaint only listed stock price on certain days); see In re ING Groep, N.V. ERISA Litig., 749 F.Supp.2d 1338, 1344 (N.D.Ga. 2010) (noting that “general economic conditions, stock prices, and market trends” are subject to judicial notice). While the court does not disagree with the proposition that the historical levels of market indices and public estimates of securities' values may properly be the subject of judicial notice, the Defendants have not provided the necessary information in order for the court to take judicial notice of the proffered data. Namely, neither the exhibits themselves nor the affidavit purportedly authenticating the data provide the source of the data, precluding the court from finding that the data “can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” See Fed. R. Evid. 201(b)(2); docs. 52-6, 52-7. Accordingly, the court does not consider these documents in ruling on the Defendants' motion.

         II. FACTUAL BACKGROUND

         A. Background on the Securities

         This case arises from the sale and subsequent collapse of a security tied to market volatility.[1] The Chicago Board Options Exchange (“CBOE”) Volatility Index, also known simply as the Volatility Index (“VIX”), is a measurement of the implied volatility of the Standard & Poor (S&P) 500 Index at points along the volatility forward curve. Doc. 45 ¶ 8. Investors can invest in the forward volatility of the S&P 500 Index by trading futures contracts-contracts in which the parties agree to purchase and sell an underlying asset at a predetermined time and price- on the VIX Index. See id. ¶ 9. The S&P 500 VIX Short-Term Futures Index ER (“VIX Futures Index”) reflects the outcome of holding long positions-the position of the party obligated to purchase the underlying asset-in VIX futures contracts in the short term. See id.

         Investors could purchase exchange-traded notes (ETNs) tied to the VIX Futures Index. One such ETN, offered by Credit Suisse, was known as the Inverse VIX Short-Term ETNs (“XIV ETNs”). Id. ¶ 9-10; doc. 52-2 at 2. The XIV ETNs were designed to generally provide the opposite return of the VIX; meaning that as market volatility decreased, generally, the value of the XIV ETNs increased, and vice-versa. See doc. 45 ¶ 10; doc. 52-2 at 26. The XIV ETNs were liquid, tradeable, and available to unsophisticated investors. Doc. 45 ¶¶ 12-13. Like stock, their value was dictated by market supply and demand. Id. In 2017 and the beginning of 2018, the value of XIV ETNs consistently increased due to low volatility in the stock market, leading unsophisticated investors to purchase the XIV ETNs. Id. ¶ 24.

         B. The Offering Documents

         On January 29, 2018, Credit Suisse issued a pricing supplement pursuant to SEC Rule 424(b)(2) in conjunction with a registration statement, a prospectus, and a prospectus supplement (collectively “the Offering Documents”). Id. ¶ 16. The Offering Documents offered for sale six series of ETNs linked to market volatility, one of which was the XIV ETNs. See id. ¶ 10; doc. 52-2 at 2. Between February 2 and 5, 2018, the Halberts purchased 5, 590 XIV ETNs, of the 16, 275, 500 XIV ETNs Credit Suisse offered at a principal amount of $10 each. Id. Credit Suisse collected a daily investor fee on these XIV ETNs, “generat[ing] millions of dollars for Credit Suisse.” Id. ¶ 15.

         The Offering Documents explained that Credit Suisse and Janus would publish two public estimates of the value of the XIV ETNs at certain times: an Intraday Indicative Value, updated every fifteen seconds, and a Closing Indicative Value at the close of each day. Id. ¶¶ 13-14; doc. 52-2 at 5, 7. Furthermore, the Documents explained that Credit Suisse had the option to accelerate the XIV ETNs upon the occurrence of “any event that adversely affects [Credit Suisse's] ability to hedge or [its] rights in connection with the ETNs, including . . . if, at any point, the Intraday Indicative Value is equal to or less than twenty percent (20%) of the prior day's Closing Indicative Value.” Docs. 45 ¶ 19; 52-2 at 8.

         Finally, the Offering Documents contained various disclosures, including that Credit Suisse “expect[s] to hedge [its] obligations relating to the ETNs” and “may also engage in trading in the underlying futures, or . . . futures contracts, ” both of which “could adversely affect . . . the market value of [investors'] ETNs . . .” Doc. 45 ¶ 18 (quoting doc. 52-2 at 34). The Offering Documents also stated, inter alia, that it was “possible that [Credit Suisse] . . . could receive substantial returns with respect to these hedging activities while the value of [investors'] ETNs decline or become zero.” Id.

         C. The February 5, 2018 Volatility Spike and Collapse of the XIV ETNs

         A week after Credit Suisse issued additional XIV ETNs, market volatility spiked and the value of XIV ETNs, which totaled approximately $1.9 billion, collapsed, see doc. 45 ¶ 22, due to heavy trading in March VIX futures, which caused VIX futures prices to dramatically increase because of “liquidity issues in the VIX futures market due to volatility in the market, ” id. ¶ 36. Before 4:00 p.m. E.T. on February 5, 2018, the average VIX futures price increased 34.5% “from the previous day.” Doc. 45 ¶ 37. By 4:09 p.m., that average price had increased to over 80% of the previous day's closing value. Id. And, by 4:15 p.m., VIX futures prices were 96% greater than “the day before.” Id. ¶ 28.

         As to be expected, the value of XIV ETNs dropped dramatically during the same period. At the closing bell at 4:00 p.m., the XIV ETN was trading at a value of $99.00. Doc. 45 ¶ 25. At 4:30 p.m., the trading price of XIV ETNs was $70.01 and, by 4:45 p.m., the price had dropped to $42.81 per share. Id. ¶ 30. By 6:28 p.m., the price of XIV ETNs was $10.16 per note, a decrease of 89.74% from its “closing value” that day. Id. ¶ 32.

         During this period, the Intraday Indicative Value did not accurately track the decline in the XIV ETN's value. See id. ¶ 26. From 4:10 p.m. until 5:09 p.m., the Intraday Indicative Value was approximately $24.70, but, at 5:10 p.m., it had dropped to $4.22. See id. ¶¶ 26, 31; doc. 52-6 at 17-18, 53. However, from 4:10 p.m. until 5:09 p.m., the “actual” value of one ETN was between $4.22 and $4.40. Doc. 45 ¶ 26.

         The following morning, Credit Suisse announced an Acceleration Event that would end trading on the XIV ETNs by February 20, 2018. Id. ¶ 33. Consequently, the Halberts sold their XIV ETNs for a fraction of their purchase price. Id. ¶¶ 33, 46. And, Credit Suisse subsequently accelerated the XIV ETNs, redeeming them for “pennies on the dollar, ” and ended trading on the securities. Id. ¶¶ 33, 41. Allegedly, had Credit Suisse not accelerated the XIV ETNs, their value would have risen to $30.88 per ETN within a month, over five times their value at redemption. Id. ¶ 45. Unlike Credit Suisse which announced that it experienced no trading losses from the XIV ETNs despite holding a “significant amount of short-volatility financial products, ” the investors lost approximately $1.8 billion in total. Id. ¶¶ 43-44.

         D. The Alleged Fraudulent Misrepresentations and Conduct

         Allegedly, the Defendants “knew, or should have known, ” that the increased value of XIV ETNs over the previous year had attracted unsophisticated investors. Id. ¶ 24. Credit Suisse was “actively manipulating” the value of the XIV ETNs by “liquidating its holdings in various financial products to avoid a loss, ” id. ¶ 27, and planned to “hedge” against the XIV ETNs so that their value would plummet, to allow Credit Suisse to profit by accelerating and redeeming these lower-valued securities, see id. ¶¶ 47-48, 38-39. Moreover, the Offering Documents failed to disclose Credit Suisse's intentions with respect to the XIV ETNs, the attendant conflicts of interest between Credit Suisse and investors, and the full extent of the risk that the value of the XIV would plummet. See id. ¶¶ 52, 62. And, because the market for XIV ETNs was an efficient public market that digested all publicly available information, see doc. 45 ¶ 60, the allegedly misleading statements in the Offering Documents “artificially inflate[d]” the value of the XIV ETNs, see id. ¶¶ 47-48.

         Credit Suisse purportedly engaged in “hedging activities” that caused the sudden increase in VIX futures prices. See id. ¶¶ 37-38. Additionally, from 4:10 to 5:09 p.m. on the day at issue, the Defendants failed to “update” the Intraday Indicative Value while “the value of the underlying VIX futures were rapidly changing.” Id. ¶ 26. The Defendants knew, or should have known, that the VIX Futures Index, on which the Intraday Indicative Value depended, was “not updating every 15 seconds to ‘apply[] real time prices of the relevant VIX futures contracts, '” and yet never attempted to notify or warn investors of this failure. Id. ¶¶ 26-27. The failure to update the Intraday Indicative Value increased the likelihood of an Acceleration Event because, if the Defendants had done so, the Closing Indicative Value would have only been 77% of the previous day's value. Id. ¶ 41. Instead, the Intraday Indicative Value dropped to 20% or less than of the previous day's Closing Indicative Value, [2] thereby giving Credit Suisse an option, but not an obligation, to declare an Acceleration Event pursuant to the Offering Documents. See id. ¶¶ 19, 34. It consequently exercised this option, allowing Credit Suisse to “realize[] an enormous profit” by redeeming the outstanding XIV ETNs. See id. ¶ 46.

         Based on these alleged fraudulent acts and misrepresentations, the Halberts plead violations of Section 10(b) of the Exchange Act of 1934, 15 U.S.C. § 78j(b), negligence, wantonness, fraudulent misrepresentation, negligent misrepresentation, and fraudulent suppression. They also plead claims against Credit Suisse for violations of Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, violations of the Alabama Blue Sky Law, Ala. Code § 8-6-19(a)(2) and (c), and breach of contract.

         III. ANALYSIS

         The Defendants have moved to dismiss the federal securities claims for failure to sufficiently allege misrepresentation, scienter, and loss causation. See doc. 52, 58. They also contend that the state securities law and common law claims fail as a matter of law. See id. The opinion is divided as follows. In Section A, the court, first, finds that the Halberts have adequately alleged standing for their Section 10(b) claims premised on the allegedly false Intraday Indicative Values on February 5, 2018. Second, the court finds that, the Halberts adequately alleged material misstatements or omissions under Section 10(b) premised on the allegedly false Intraday Indicative Values, but not with respect to the alleged omissions in the Offering Documents and, therefore, their Section 11 claims also fail. Third, the court finds that the Halberts have not alleged scienter for their Section 10(b) claims. Because the Halberts' claims fail on the issues of misrepresentation and scienter, the court does not reach the issue of loss causation.

         Next, in Section B, the court finds that the Halberts have pled violations of Alabama Code §§ 8-6-19(a)(2) and (c), based on the allegedly false Intraday Indicative Values. Finally, in Section C the court finds that the Halberts have pled breach of contract against Credit Suisse and negligent misrepresentation against Janus, and that the rest of their common law claims fail.

         A. The Federal Securities Law Claims

         The Halberts assert securities claims under Section 10(b) of the Exchange Act, and SEC Rule 10b-5, as well as under Section 11 of the Securities Act.

         1. Overview of the Federal Securities Laws

         Section 10(b) of the Exchange Act of 1934 makes it unlawful “for any person . . . [t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities Exchange Commission] may prescribe . . .” 15 U.S.C. § 78j. SEC Rule 10b-5, promulgated under Section 10(b), further makes it “unlawful for any person”

(a) To employ any device, scheme, or artifice to defraud,
(b) To 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, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5. Rule 10b-5 creates two types of claims under Section 10(b): misrepresentation/nondisclosure claims pursuant to Rule 10b-5(b), and scheme liability/market manipulation claims pursuant to Rule 10b-5(a) and (c). See IBEW Local 595 Pension & Money Purchase Pension Plans v. ADT Corp., 660 Fed.Appx. 850, 858 (11th Cir. 2016) (“A scheme liability claim [under § 10(b)] is different and separate from a nondisclosure claim.”); Ala. Farm Bureau Mut. Cas. Co. v. Am. Fid. Life Ins. Co., 606 F.2d 602, 608 (5th Cir. 1979) (recognizing scheme liability claims under § 10(b) and Rule 10b-5).[3] To establish a misrepresentation claim under Rule 10b-5(b), plaintiffs must allege: “(1) the existence of a material misrepresentation or omission, (2) made with scienter, (3) in connection with the purchase or sale of a security, (4) on which the plaintiff relied, and (5) which was causally connected to (6) the plaintiff's economic loss.” Edward J. Goodman Life Income Tr. v. Jabil Circuit, Inc., 594 F.3d 783, 789 (11th Cir. 2010). Scheme liability claims, on the other hand, require a showing of conduct that “can be fairly viewed as ‘manipulative or deceptive' within the meaning of the statute.” Ala. Farm Bureau, 606 F.2d at 608 (quoting Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 473-74 (1977)). In other words, plaintiffs must allege “intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.” In re Galectin Therapeutics, Inc. Sec. Litig., 843 F.3d 1257, 1273 (11th Cir. 2016) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199 (1976)). Basically, a plaintiff must show that defendants engaged in an activity “designed to ‘create an unnatural and unwarranted appearance of market activity.'” See Id. (citation omitted). And, significantly, “[m]isleading statements and omissions only create scheme liability in conjunction with ‘conduct beyond those misrepresentations or omissions.'” IBEW, 660 Fed.Appx. at 858 (internal citation omitted)).[4]

         By contrast, Section 11(a) of the Securities Act of 1933 “provides a cause of action to purchasers of securities where: ‘any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.'” Oxford Asset Mgmt. Ltd. v. Jaharis, 297 F.3d 1182, 1189 (11th Cir. 2002) (quoting 15 U.S.C. § 77k(a)). A “registration statement” includes a prospectus and any supplements. See Miyahira v. Vitacost.com, Inc., 715 F.3d 1257, 1265 (11th Cir. 2013). “A registration statement can be misleading either by containing an untrue statement or by omitting facts that are necessary to prevent other statements from being misleading.” Wagner v. First Horizon Pharm. Corp., 464 F.3d 1273, 1277 (11th Cir. 2006) (citing 15 U.S.C. § 77k(a)). There is no state of mind element to a Section 11 claim, and liability is “virtually absolute, even for innocent misstatements.” Id. (quoting Herman & MacLean v. Huddleston, 459 U.S. 375, 382 (1983)). For Section 11 claims premised on material omissions, plaintiffs must allege:

1) the [registration statement] contained an omission; 2) the omission was material; 3) defendants were under a duty to disclose the omitted material information; and 4) that such information existed at the time the [relevant part of the registration statement] became effective.

Oxford Asset Mgmt., 297 F.3d at 1189. Finally, where, as here, “the [alleged] facts underlying the misrepresentation at stake in the [Section 11] claim are said to be part of a fraud claim, as alleged elsewhere in the complaint[, ] . . . plaintiffs must plead with particularity.” See Wagner, 464 F.3d at 1278.

         2. Standing under Section 10(b)

         As an initial matter, the Defendants contend that the Halberts lack standing to assert their Section 10(b) claim with respect to the alleged misrepresentations of the Intraday Indicative Value on February 5, 2018 because they failed to allege that they purchased or sold the XIV ETNs during the one-hour window when Defendants purportedly misrepresented the value. Doc. 52 at 9-10; 58 at 2-3. In support of this contention, the Defendants cite O & G Carriers, Inc. v. Smith, in which the Southern District of New York held that, because “the alleged fraud . . . took place after [the plaintiffs] had invested, the alleged fraud was not ‘in connection with' the purchase or sale of a security, ” as required by Section 10(b). See 799 F.Supp. 1528, 1539 (S.D.N.Y. 1992). However, although the Halberts do not specifically allege that they bought and sold XIV ETNs within the one-hour period when the Intraday Indicative Value allegedly failed to update, they do allege that they bought and sold XIV ETNs on February 5 and 6, 2018. See doc. 45 ¶ 46. Moreover, the Halberts allege that they purchased the XIV ETNs “in reliance on the integrity of the market, ” id. ¶ 63, which, they allege, was an efficient market that was affected by “the misstated Intraday Indicative Values, ” id. ¶ 60. Their contentions are sufficient to allege a “fraud-on-the-market theory” of reliance, see doc. 45 ¶ 60, which entitles the Halberts to a rebuttable presumption of reliance on the allegedly false Intraday Indicative Values based on the theory that “the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations[.]” See Meyer v. Greene, 710 F.3d 1189, 1195 (11th Cir. 2013) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 241 (1988)); Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, 552 U.S. 148, 159 (2008) (“[U]nder the fraud-on-the-market doctrine, reliance is presumed when the statements at issue become public.”).

         The Defendants further contend that the Halberts have merely alleged impermissible “holding” claims-that the allegedly false Intraday Indicative Values on February 5, 2018 induced them to hold, rather than to buy or sell, their XIV ETNs. See doc. 58 at 7-8. In Blue Chip Stamps v. Manor Drug Stores, the Supreme Court affirmed the standing rule created by Birnbaum v. Newport Steel Corp., 193 F.2d 461, 464 (2d Cir. 1952), which permits only purchasers and sellers of securities, and parties to contracts to purchase and sell securities, to bring suit under Rule 10b-5. 421 U.S. 723, 731-32 (1975). This rule bars, in part, plaintiffs who “are actual shareholders in the issuer who allege that they decided not to sell their shares because of an unduly rosy representation or a failure to disclose unfavorable material. . . .” Blue Chip Stamps, 421 U.S. at 737-38. In citing this rule and contending that the Halberts have plead impermissible “holder” claims, the Defendants rely on assertions from the Halberts' responsive brief, rather than the allegations in the Amended Complaint. See doc. 58 at 2-3. In ruling on a motion to dismiss, however, the court's review is limited to the allegations in the complaint, incorporated exhibits, central and undisputed extrinsic documents, and judicially-noticed documents and facts. See U.S. ex rel. Osheroff v. Humana Inc., 776 F.3d 805, 811 (11th Cir. 2015) (describing what district courts may consider on motion to dismiss under Rule 12(b)(6)). The court cannot, and does not, consider unpleaded allegations in the parties' briefs. See id. Accordingly, at this stage of the proceedings, the Halberts have adequately alleged standing for their Section 10(b) claim premised on the allegedly false Intraday Indicative Values on February 5, 2018.

         3. Material Misrepresentations under Section 10(b) and Section 11

         To state a claim under Section 11 of the Securities Act, or a misrepresentation claim under Section 10(b) and Rule 10b-5(b) of the Exchange Act, “a complaint must allege the misstatement or omission of a material fact.” In re BellSouth Corp. Sec. Litig., 355 F.Supp.2d 1350, 1365 (N.D.Ga. 2005). A statement is misleading under the securities laws “if in the light of the facts existing at the time of the [statement] . . . [a] reasonable investor, in the exercise of due care, would have been misled by it.” FindWhat Inv'r Grp. v. FindWhat.com, 658 F.3d 1282, 1305 (11th Cir. 2011) (quoting parenthetically SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 863 (2d Cir. 1968)). “In other words, if no reasonable investor could conclude public statements, taken together and in context, were misleading, the issue is appropriately resolved as a matter of law.” In re BellSouth, 355 F.Supp.2d at 1365 (citation omitted) (analyzing Section 11 and Section 10(b) misrepresentation claims together). The alleged misleading misrepresentations must also be material-i.e., that “there is a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.” S.E.C. v. Morgan Keegan & Co., Inc., 678 F.3d 1233, 1245 (11th Cir. 2012) (articulating this standard for Section 10(b) claims); see Oxford Asset Mgmt., 297 F.3d at 1189 (applying this standard under Section 11). “The trier of fact usually decides the issue of materiality.” Oxford Asset Mgmt., 297 F.3d at 1189. “Only if the lack of importance of the omission is so plain that reasonable minds cannot differ thereabout is it proper for the court to pronounce the omission immaterial as a matter of law.” Id.

         a. Alleged Omissions Concerning Hedging and Plan to Collapse and ...


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