588 F. App'x 37
2d Cir.2014Background
- Plaintiffs (Elite Aviation LLC and Endless H3) brought a putative class action under Sections 11 and 15 of the Securities Act alleging materially misleading statements/omissions in Credit Suisse offering materials for TVIX ETNs.
- Challenged documents: Registration Statement, Prospectus, Pricing Supplement, and a February 2012 Press Release.
- Core assertion: Pricing Supplement and Press Release suggested TVIX ETNs could be held longer than one trading day and omitted risks of buying during a suspension of new issuances.
- District court dismissed the complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim; plaintiffs appealed.
- Court reviewed dismissal de novo and focused on whether a reasonable investor would be misled by the challenged statements/omissions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Pricing Supplement materially misrepresented suitability of holding TVIX ETNs > one day | Pricing Supplement’s hypothetical performance examples and references (cash payment at maturity, path of daily returns) implied suitability for long-term holding | Pricing Supplement repeatedly and conspicuously warned ETNs are short-term, daily instruments and will erode if held longer; examples were disclaimers/examples only | Dismissed — no material misstatement; overall disclosures conveyed short-term nature clearly |
| Whether offering documents/Press Release omitted material risks when new-issuance was suspended | Omission of additional risk disclosure made purchases during suspension misleading (secondary market risk) | Documents explained Credit Suisse’s discretion to suspend issuance and warned secondary-market prices could differ materially from indicative value | Dismissed — adequate disclosure; reasonable investor would understand the suspension risk |
| Whether plaintiffs stated a primary Section 11 claim (standing for Section 15 liability) | Plaintiffs asserted misstatements/omissions under Section 11 | Defendant argued Section 11 claim fails on materiality grounds, so no Section 15 secondary liability | Dismissed — Section 11 claims affirmed dismissed; consequently Section 15 claims also dismissed |
| Standard of review on Rule 12(b)(6) dismissal | N/A (procedure) | N/A (procedure) | Court applied de novo review, accepting pleaded facts and inferences but found plaintiffs’ allegations insufficient |
Key Cases Cited
- In re Morgan Stanley Info. Fund Secs. Litig., 592 F.3d 347 (2d Cir. 2010) (materiality assessed by whether representations, taken together and in context, would mislead a reasonable investor)
- In re ProShares Trust Secs. Litig., 728 F.3d 96 (2d Cir. 2013) (an investor’s mere possible consideration of an omission is insufficient to establish materiality)
- Litwin v. Blackstone Grp., L.P., 634 F.3d 706 (2d Cir. 2011) (Rule 12(b)(6) dismissal reviewed de novo)