279 F.R.D. 221
S.D.N.Y.2012Background
- Lead plaintiffs sue Direxion, Rafferty, and officers for Securities Act Sections 11 and 15 claims regarding four Bear Funds (FAZ, ERY, BGZ, TZA).
- SAC asserts claims for FAZ, ERY, BGZ, and TZA purchases; lead plaintiffs seek class relief.
- Court consolidates FAZ and ERY actions; Booth seeks intervention for BGZ and TZA claims.
- SAC contends disclosures failed to adequately warn against holding Bear Funds longer than a day; April 10 Supplement allegedly clarified risks.
- Court analyzes standing, statute of limitations, and misstatement/omission plausibility; partial dismissal and partial denial of relief are contemplated.
- Booth’s intervention argued to cure standing for BGZ/TZA but denied; overall path limited to FAZ claims unless amended.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue for BGZ/TZA | Stoopler et al. have standing for BGZ/TZA claims via class | Plaintiffs lack injury in these funds; no ownership | BGZ/TZA claims dismissed for lack of Article III standing |
| Timeliness under the Securities Act | Allegations sufficient to show timely discovery respecting misstatements | Insufficient time-and-circumstance detail; equitable tolling not warranted | Some FAZ claims timeliness viable; others dismissed; amendment allowed to cure deficiencies |
| Sufficiency of alleged misstatements/omissions under Section 11 | Disclosures were inadequate to reveal the magnitude of risk when holding longer than one day | Disclosures warned of daily leverage and long-hold risks; repeated references to daily holdings | SAC plausibly states misstatements/omissions; claims may proceed for FAZ/ERY (as applicable) |
| Intervention by Booth to assert BGZ/TZA claims | Intervention would cure standing and allow BGZ/TZA claims | Untimely; not within the scope of timely class; would create jurisdictional issues | Booth’s motion denied; no relation back or tolling salvages claims; intervention denied |
Key Cases Cited
- Merck & Co. v. Reynolds, 559 U.S. 633 (U.S. 2010) (discovery rule for inquiry notice under securities claims)
- Twombly v. Bell Atlantic Corp., 550 U.S. 544 (U.S. 2007) (pleading requires plausible entitlement to relief)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleading)
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (standard for scienter/pleading in securities cases; pleading sufficiency)