402 F.Supp.3d 1288
N.D. Ala.2019Background
- Plaintiffs Erich, Sherri, and John Halbert bought Credit Suisse XIV inverse-VIX ETNs on Feb. 2–5, 2018; a market volatility spike on Feb. 5 caused XIV’s value to collapse and Credit Suisse accelerated and redeemed the notes at steep discounts.
- Credit Suisse issued a January 29, 2018 Pricing Supplement (part of the Offering Documents) describing: the ETNs, that Credit Suisse expected to hedge its exposures, the availability of Intraday Indicative Values (updated every 15 seconds) and Closing Indicative Values, and an acceleration right if the Intraday Indicative Value fell to ≤20% of prior close.
- Plaintiffs allege (1) the Intraday Indicative Value published between ~4:10–5:09 pm on Feb. 5 was materially overstated (did not track the ETN’s ‘‘economic value’’), and (2) defendants hedged in a way that intentionally or recklessly caused the collapse so Credit Suisse could profit by accelerating.
- Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6); court treated the Pricing Supplement as central and judicially noticed but declined to consider other unauthenticated market-data exhibits.
- Court dismissed federal securities claims (Sections 10(b)/10b‑5 and Section 11) for failure to plead scienter and actionable omissions in the Offering Documents, but preserved (1) Alabama Blue Sky Act claims (Ala. Code § 8‑6‑19(a)(2) and (c)) based on the allegedly false Intraday Indicative Values, (2) a breach of contract claim against Credit Suisse, and (3) a negligent‑misrepresentation claim against Janus relating to the Intraday Indicative Value.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under § 10(b) for misstatements of Intraday Indicative Value | Halberts say they bought/sold on Feb. 5–6 and relied on market integrity; invoke fraud‑on‑the‑market reliance | Defendants say alleged misstatement occurred after plaintiffs’ purchases and therefore not "in connection with" a purchase/sale | Court: Plaintiffs adequately alleged fraud‑on‑the‑market reliance; standing to pursue §10(b) claim based on Intraday values survives at pleading stage |
| Material misstatements/omissions in Offering Documents (hedging, intent to profit/accelerate) | Plaintiffs: Offering Documents omitted that defendants planned to hedge to cause collapse and profit; disclosures were misleading by understatement | Defendants: Offering Documents expressly disclosed hedging, conflicts, acceleration risk; plaintiffs’ allegations are speculative/retrospective | Court: Dismissed—offerings’ disclosures were adequate and plaintiffs failed to plead particularized facts to show actionable omissions under §11 or §10(b) |
| Misrepresentation in Intraday Indicative Values on Feb. 5 | Plaintiffs: Intraday values (4:10–5:09 pm) materially overstated the ETN’s economic value and failed to update every 15 seconds as promised | Defendants: Intraday values are estimates with express warnings; Janus (not CS) was the calculation agent; even if inaccurate, not necessarily misleading or material | Court: Plaintiffs plausibly alleged falsely stated Intraday Indicative Values; those allegations survive for state law and some common‑law claims, but not federal §10(b) claims (see scienter) |
| Scienter for §10(b) (both Credit Suisse and Janus) | Plaintiffs: motive/opportunity (sold millions of ETNs, fees, large outstanding liability) and circumstantial facts (timing of hedging and failure to update) show intent or severe recklessness | Defendants: allegations are retrospective, speculative, and nonculpable explanations (market reaction, S&P/VIX feed failure) are more compelling | Court: Dismissed federal claims—plaintiffs failed to plead a strong inference of scienter for either defendant |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard requires factual plausibility)
- Bell Atlantic v. Twombly, 550 U.S. 544 (2007) (plausibility requirement for complaints)
- FindWhat Inv’r Grp. v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011) (Rule 9(b) particularity for fraud allegations)
- Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (2011) (who is the "maker" of a statement under Rule 10b‑5)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (holistic, comparative test for scienter; strong inference required)
- Mizzaro v. Home Depot, Inc., 544 F.3d 1230 (11th Cir. 2008) (scienter requires intent or severe recklessness)
- Oxford Asset Mgmt. Ltd. v. Jaharis, 297 F.3d 1182 (11th Cir. 2002) (Section 11 omission elements and materiality standard)
- Bryant v. Avado Brands, Inc., 187 F.3d 1271 (11th Cir. 1999) (judicial notice of SEC‑filed public documents in securities cases)