917 F. Supp. 2d 217
S.D.N.Y.2013Background
- Elbit Systems Ltd. sues Credit Suisse Group (CSG) for securities fraud, aiding and abetting and unjust enrichment, alleging CSS acted as CSG’s agent.
- CSG wholly owns CSS; CSS broker-dealer serviced Tadiran’s Corporate Cash Management account; Tadiran transferred $31M to Credit Suisse for investments.
- The investments shifted from ARS to CDO/CLN-backed securities without disclosure; auctions later failed and losses approached $16M.
- Elbit alleges a cover-up by Credit Suisse, including misrepresentations and misstatements regarding the brokers and the status of the investigation.
- CSG claims it is not CSS’s agent or a control person for purposes of liability; the case was transferred to SDNY for adjudication.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is CSS alleged to be CSG’s agent with actual authority? | Elbit pleads CSS acted under CSG control and authority. | CSG contends no agency relationship is pled. | Yes; agency plausibly alleged. |
| Did Elbit adequately plead apparent authority? | Elbit relies on CSG’s branding and actions to imply apparent authority. | No direct representations or reliance by Tadiran on CSS’s apparent authority. | No; apparent authority not adequately plead. |
| Can CSG be liable as a control person under Section 20(a)? | CSG controlled CSS and was culpable in the fraud. | CSG disputes control and culpable participation. | Adequately alleged control person liability. |
| Is there direct liability by CSG for statements by CSS employees? | CSG itself made or endorsed the statements via its agent. | No direct statements attributed to CSG; agency theory controls. | Direct liability not pled; agency liability governs. |
| Did Elbit adequately plead aiding and abetting common law fraud and unjust enrichment? | CSG knowingly aided and substantially assisted CSS’s fraud and enriched itself. | Requires more direct proof of knowledge and assistance. | Aiding and abetting and unjust enrichment adequately pled. |
Key Cases Cited
- Slayton v. American Express Co., 604 F.3d 758 (2d Cir. 2010) (requirements for §10(b) pleadings; strong inference of scienter)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (pleading standard: strong inference of scienter)
- Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (U.S. 1994) (abstains from aiding-and-abetting liability in §10(b) context)
- Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (U.S. 2011) (maker of statement; ultimate authority over content and communication)
- STMicroelectronics v. Credit Suisse Group, 775 F. Supp. 2d 525 (E.D.N.Y. 2011) (agency and control considerations in 10(b) context)
- In re Shulman Transp. Enters., Inc., 744 F.2d 293 (2d Cir. 1984) (agency relationship characteristics)
- N.Y. Univ. v. First Fin. Ins. Co., 322 F.3d 750 (2d Cir. 2003) (imputation of agent’s knowledge to principal)