In re Manulife Financial Corp. Securities Litigation
2011 WL 1990883
S.D.N.Y.2011Background
- Lead Plaintiffs sue Manulife and former CEO D’Alessandro and former CFO Rubenovitch for alleged securities fraud under §10(b) and Rule 10b-5 for Class Period Mar 28, 2008–Mar 3, 2009.
- Guaranted Products (segregated funds and variable annuities) expose Manulife to long-duration liabilities funded by equity investments.
- Manulife disclosed risk management processes, capital adequacy metrics (CTE, MCCSR, MCCSR 90% confidence), and hedging programs in annual reports and public filings.
- Plaintiffs allege statements about risk management and capital adequacy were false or misleading, particularly during May, August, November 2008 and Oct 2008.
- During fall 2008 market turmoil, Manulife announced capital actions (loan, equity raise) and revised capital requirements under OFSI guidance.
- Court grants Rule 12(b)(6) dismissal without prejudice, finding failure to plead actionable misstatements or scienter, and leaves open amendment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether risk-management statements were actionable misrepresentations | Plaintiffs allege misrepresented risk controls under stress tests and hedging. | Defendants contend disclosures were adequate and not false when made. | Not actionable; statements were not misrepresented or made with scienter. |
| Whether capital-reserve and adequacy statements were actionable | Plaintiffs claim 'well capitalized' statements misled about Guaranteed Product risk. | Defendants argue discretion in capital adequacy and forward-looking nature shielded statements. | Not actionable; statements read in context were non-actionable forward-looking or opinion. |
| Whether the complaint adequately pleads scienter under PSLRA | Plaintiffs argue motive or conscious recklessness from risk management role and OSC investigation. | Plaintiffs fail to show strong inference of scienter; regulator scrutiny is not proof of fraud. | No strong inference of scienter; scienter not adequately pleaded. |
| Whether loss causation is adequately pled | Plaintiffs contend price declines align with disclosure of fraud during 2008–2009. | Defendants challenge timing gaps and lack of corrective disclosures tying declines to misstatements. | Loss causation not adequately pleaded; several declines cannot be tied to corrective disclosures. |
| Whether §20(a) control-person liability survives | Control persons liable if primary violation proven and culpable participation shown. | No primary violation proven; control-person liability cannot attach. | Dismissed; §20(a) claims fail with underlying §10(b) claims. |
Key Cases Cited
- Lentell v. Merrill Lynch & Co. Inc., 396 F.3d 161 (2d Cir. 2005) (loss causation framework; require causal link)
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (pleading with particularity; strong inference of scienter)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. Supreme Court 2009) (plausibility pleading standard)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. Supreme Court 2007) (requirement of strong inference of scienter)
- Rombach v. Chang, 355 F.3d 162 (2d Cir. 2004) (fraud pleading standards)
- In re DDAVP Direct Purchaser Antitrust Litig., 585 F.3d 677 (2d Cir. 2009) (heightened pleading requirements)
- In re Omnicom Group, Inc. Secs. Litig., 541 F. Supp. 2d 546 (S.D.N.Y. 2008) (loss causation and corrective disclosures analysis)