Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Securities, LLC, 2015 U.S. App. LEXIS 12800

Plaintiffs are Loreley-financing entities invested in three Wachovia-sold CDOs (Octans, Sagittarius, Longshore) that defaulted between 2007–2008.
Plaintiffs allege misrepresentations in offering materials and concealment of Magnetar’s role and influence over asset selection.
Three defendants: Wachovia entities (Wachovia Capital Markets, Wachovia Securities International Limited, Wells Fargo Bank, N.A.) and collateral managers Harding and SAI.
SEC investigation found Longshore assets transferred at cost despite declines; SEC findings cited in supporting allegations.
District court dismissed the fraud claim under Rule 12(b)(6) and denied leave to amend; case was removed to federal court under the Edge Act; on appeal, court reverses in part, vacates in part, and remands for further proceedings.
Court discusses complex CDO structure, including tranching, collateral manager duties, and use of CDSs, to frame fraud allegations.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the fraud claim against Wachovia and Harding is adequately pleaded under Rule 9(b).	Plaintiffs allege misrepresentations about collateral managers and undisclosed Magnetar control.	District court required disaggregation and found lack of plausible misrepresentation or scienter.	Fraud pleadings against Wachovia and Harding adequate; reversal of dismissal on these grounds.
Whether group pleading satisfies Rule 9(b)’s speaker identification for Wachovia.	Wachovia affiliates acted as insiders/affiliates in offering; group pleading sufficient.	Need to identify a single entity within group.	Group pleading sufficient for the offering-materials misstatements; no fixed single-entity identification required.
Whether SAI’s alleged misrepresentation and scienter are adequately pleaded.	SAI’s role in asset selection and concealment of Magnetar’s influence should be alleged.	No explicit misrepresentation by SAI and no sufficient scienter.	Claims against SAI inadequate; must replead with particularity to state a fraud claim against SAI.
Whether loss causation is adequately pleaded and its pleading standard.	Loss causation shown by link between misrepresentation and losses amid market crash.	Loss causation not sufficiently pleaded or is too attenuated.	Loss causation pleadings sufficient at this stage; discussion clarifies standards and holds that causation need not be exhaustively proven at pleading.

Luce v. Edelstein, 802 F.2d 49 (2d Cir. 1986) (group pleading allowed for offering materials disclosures within insider/affiliate context)
Ouaknine v. MacFarlane, 897 F.2d 75 (2d Cir. 1990) (group attribution of offering-statements permitted)
DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242 (2d Cir. 1987) (identifies when group attributions satisfy Rule 9(b) for offering documents)
Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168 (2d Cir. 2004) (test for pleading purposes: detail of circumstances of fraud)
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (strong inference of scienter required; plausibility standard for fraud claims)
Iqbal v. Ashcroft, 556 U.S. 662 (U.S. 2009) (pleading standard: plausibility, not mere possibility)
Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (loss causation pleading considerations in securities fraud)
Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (loss causation concepts in federal securities fraud context)
Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) (strong inference standard for scienter)
Lipsky v. Commonwealth United Corp., 551 F.2d 887 (2d Cir. 1976) (SEC orders generally not admissible to prove liability; nonetheless can inform allegations)