105 F. Supp. 3d 330
S.D.N.Y.2015Background
- Plaintiffs bring a putative class action on behalf of Barclays ADS purchasers between Aug 2, 2011 and Jun 25, 2014 against Barclays PLC, Barclays Capital Inc., and individual defendants (Diamond, Jenkins, Lucas, Morzaria, White).
- NYAG filed a Martin Act suit against Barclays on Jun 25, 2014 alleging concealment of LX dark pool operations and related safeguards.
- Plaintiffs borrow NYAG allegations alleging Barclays misrepresented LX’s transparency and safeguards and courted high-frequency traders to grow LX.
- Barclays publicly touted Salz report recommendations and a cultural change program (Transform Programme) to improve governance, risk, and transparency.
- LX, Barclays’ dark pool, sought to attract liquidity via Liquidity Profiling, but allegedly allowed predatory HFTs and failed to discipline them, undermining disclosures.
- Defendants moved to dismiss under Rule 12(b)(6); the court granted in part, dismissing Section 20(a) claims against Lucas and Morzaria and preserving other claims with certain inactionable statements noted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May plaintiffs rely on NYAG allegations? | Plaintiffs may borrow NYAG allegations as credible basis for claims. | Borrowed allegations should be struck for lack of investigation and Rule 11 concerns. | Plaintiffs may rely on NYAG allegations with amendment to verify accuracy. |
| Are general statements about business practices actionable? | General risk and compliance statements are actionable when misleading conclusions about LX arise. | General puffery cannot support liability; statements are aspirational and not actionable. | Generally inactionable puffery; most general statements not actionable. |
| Were Salz-report responses specific enough to be actionable regarding LX? | Statements responding to Salz were tied to LX’s safeguards and reputational restoration. | Salz-related statements lack specificity and do not tie to LX misrepresentations. | Salz-response statements deemed inactionable puffery; not actionable against LX misrepresentations. |
| Did the complaint plausibly plead materiality and scienter for LX misrepresentations? | LX misstatements about transparency and safeguards were material and made with scienter. | Materiality and scienter not adequately pleaded; misstatements are too general and lack strong inference of intent. | Materiality pleaded; scienter adequate only for White, not for other individuals. |
| Can loss causation be shown for the Telegraph article (June 27, 2014)? | The Telegraph article contributed to market reaction and losses following NYAG disclosure. | Telegraph piece did not reveal new fraud and mere speculation about fines cannot establish loss causation. | Loss causation regarding Telegraph article not established; certain claims limited. |
Key Cases Cited
- In re BP p.l.c. Securities Litigation, 843 F. Supp. 2d 712 (S.D. Tex. 2012) (materiality and cautionary language considerations for post-disaster disclosures)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (Supreme Court 2007) (strength of inference required for scienter)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (Supreme Court 1976) (defining scienter as intent or extreme recklessness)
- City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014) (puffery vs. actionable statements; especially risk-management claims)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (motive and opportunity versus conscious recklessness standard)
- Slayton v. American Express Co., 604 F.3d 758 (2d Cir. 2010) (corporate position alone not enough for scienter; need concrete allegations)
- In re Omnicom Group, Inc. Sec. Litig., 597 F.3d 501 (2d Cir. 2010) (fraud on the market; reliance standards; market effect considerations)
- ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JPMorgan Chase & Co., 553 F.3d 187 (2d Cir. 2009) (analysis of safe harbor and bespeaks caution doctrine)