In an opinion Friday, Judge Forrest dismissed a class action accusing UBS of securities fraud for statements about its risk controls that allegedly proved false when a rogue trader lost $2.3 billion.  The opinion begins:

Over the past several years, it has been ever so easy to make banks the target of lawsuits alleging securities fraud: what banks said, how those statements failed to match up to what happened, and who did or should have known. One might think of the tired but appropriate phrase “shooting fish in a barrel.” But the securities laws have limits; and it is the responsibility of the courts to ensure that those limits are enforced, and that lawsuits which cannot withstand the most basic scrutiny find their way into whatever great beyond awaits suits dismissed for failure to state a claim. The securities laws do not, for instance, require that banks be prescient or omniscient; they do require, inter alia, that a company and officers or directors accused of fraud have the requisite state of mind; they do require that the maker of statements alleged to be false knew of the falsity at the time. This is a lawsuit which essentially asserts that statements regarding risk controls must have been false because they occurred while a rogue trader racked up a massive loss; this lawsuit fails to meet the basic requirements for stating a claim.

Among other grounds to dismiss, Judge Forrest found there were insufficient grounds to conclude that vague statements about risk controls were false when made:

Here, each series of alleged misstatements are followed by a series of conclusory statements; for example, that these statements had to have been false and misleading because traders were incentivized to take high risks, that there was a failure to monitor desk trading positions in any automated manner, that risk supervision was not robust, and the like. The conclusory language contained the operative Complaint is insufficient to support falsity. At most, the allegations are supportive of internal management issues and competing incentives a far cry from the speaker knowing (or having reason to know) at the time that he was making an alleged statement that the statement was in fact false. Put another way, a statement, even if based on flimsy scaffolding, is false only if untrue. Plaintiffs attempt to support falsity by pointing to two ex post facto reports, filings, and statements criticizing UBS’s risk controls. These are insufficient to support an inference of falsity at the time the alleged statements were made. First, all of the reports, filings, and statements are ex post. At most, the reports, filings, and statements amount to a later realization that risk controls were not catching certain conduct and could be improved upon. Second, not a single one of the reports, filings, or subsequent statements is directly tied to any particular alleged misstatements. None, for instance, refer to a specific statement and say, in substance, “the prior statement or statements we made we knew were wrong at the time.” None provide sufficient information that would allow this Court to draw such an inference even circumstantially.