471 F. App'x 30
2d Cir.2012Background
- Plaintiffs allege market manipulation under Section 10(b) and Rule 10b-5, and a controlling person claim under Section 20(a) against Citigroup entities.
- District court dismissed the Fourth Consolidated Amended Complaint with prejudice for failure to state a claim.
- Disclosures disclosed that Citigroup could place bids in auctions for its own account and that bids could affect auction rates and allocations.
- Plaintiffs argued the district court erred by taking judicial notice of documents about ARS bidding practices and related disclosures.
- The court held that the alleged conduct was precluded by disclosures; plaintiffs could not plausibly claim manipulation given public disclosures.
- The Second Circuit affirmed the district court’s dismissal and also affirmed the denial of the Section 20(a) claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court abused its discretion by judicially noticing documents. | Plaintiffs contend the notices were improper. | Defendants maintain notice was proper to show public availability. | No abuse; notices proper and not by their truth. |
| Whether the market manipulation claim was adequately pled. | Plaintiffs claim misrepresentations and concealment in ARS bidding. | Disclosures render manipulation unlikely and preclude a plausible claim. | Dismissal affirmed; disclosures preclude manipulation claim. |
| Whether Citigroup can be liable as a controlling person under Section 20(a). | Citigroup controlled the alleged misdeeds and should be liable. | No primary violation established; controlling person claim fails with underlying claim. | Affirmed; 20(a) claim dismissed. |
Key Cases Cited
- Ernst & Hochfelder, 425 U.S. 185 (U.S. 1976) (intent requisite for manipulation claims)
- Santa Fe Indus., Inc. v. Green, 430 U.S. 462 (U.S. 1977) (manipulation is price-manipulating conduct)
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (elements of market manipulation require certain factors)
- Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406 (2d Cir. 2008) (standard for judicial notice and evidentiary considerations)
- Int'l Star Class Yacht Racing Ass’n v. Tommy Hilfiger U.S.A., Inc., 146 F.3d 66 (2d Cir. 1998) (limitations on use of judicial notice; caution warranted)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleading claims)