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In an opinion today, Judge Stein dismissed a case accusing Citibank of fraud and negligent misrepresentation for understating its exposure to mortgage-backed securities.  He dismissed the case because the plaintiffs were “holders” of the stock during the relevant time period (i.e., they did not buy at inflated prices and sell at a loss), and relied principally on a First Department decision in 2010, Starr v. AIG, which held that “holders” could not bring claims.  Judge Stein rejected the argument that Starr would not be adopted by the Court of Appeals:
Continue Reading Judge Stein Concludes Security “Holders” Cannot Bring Fraud Claims Under New York Law, Dismisses Case Against Citi

Judge Forrest, in an opinion today, denied class certification in a case accusing Deutsche Bank of misleading public statements concerning its exposure to mortgage-backed securities. The opinion was driven by Judge Forrest’s decision to disqualify the plaintiffs’ expert, Michael Marek, who testified that Deutsche Bank’s global registered shares (“GRSs”) traded on an efficient market.  She concluded he was not qualified to offer the opinions he offered, and that there were major methodological problems with his opinions:
Continue Reading Judge Forrest Denies Certification in Securities Class Action Against Deutsche Bank

In an opinion dated yesterday, Judge Scheindlin denied a motion to dismiss from two auditing firms, Ernst & Young and PriceWaterhouseCoopers, in a securities class action.  The auditors had issued “opinions” certifying the financial statements of a now bankrupt securities issuer (OSG), and argued that, under the Second Circuit’s recent decision in Fait v. Regions Financial Corp. (discussed in prior posts here and here), the plaintiffs would have to allege, under Section 11 of the Securities Act, that the auditors actually disbelieved their own opinions.  Judge Scheindlin disagreed:
Continue Reading Judge Scheindlin Rules Auditors Can Be Strictly Liable for False “Opinions” in Registration Statements

Judge Swain yesterday granted a motion for judgment on the pleadings in favor of PricewaterhouseCoopers and certain other defendants with respect to certain Securities Act claims in a class action relating to AIG’s subprime exposure.   The complaint alleged that certain accounting statements in offering documents were false, but expressly disclaimed that they were fraudulently made – presumably to avoid having to plead fraud with particularity.  Under the Securities Act, false statements in offering materials can be actionable even without fraudulent intent. After the complaint was filed, the Second Circuit decided  Fait v. Regions Financial, which held that plaintiffs challenging statements of opinion in offering materials must plead and prove that the speaker subjectively disbelieved the claims to recover under the Securities Act.  Judge Swain’s ruling was largely based on Fait.  She concluded that the accounting statements were opinions within the ambit of Fait and also concluded that disputes concerning accounting standards could be decided on the pleadings:
Continue Reading Judge Swain Dismisses Securities Act Claims Against PwC, Citing Recent “Subjective Falsity” Standard From Second Circuit