mf global decision and order.pdf

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r f t ~ D C s i 5 ; ~ 1,k~ ~ O C C t \ l E N TUNITED STATES DISTRICT COURT It!EtECTRO:\ICALLY FtLHOUTHERN DISTRICT OF NEW YORKI '-----------------------------------X

DATBFILEl): .IN RE MF GLOBAL HOLDINGS LIMITEDSECURITIES LITIGATION

11 Civ. 7866 (VM)DECISION AND ORDERThis document r e l a t e s to a l l

s ecu r i t i e s ac t ions . DeAngelis v . Corzine)-----------------------------------XVICTOR MARRERO United States Dis tr i c t Judge.

TABLE OF CONTENTSI . INTRODUCTION 5

I I BACKGRO'UND. . . . . . . . . . . . . . . . . . 13A. THE PARTIES ......... , .... , , .................... 141. Pla in t i f f s and the Class .................... 14

2. Off ice r Defendants .......................... 153. Independent Director Defendants ............. 164. Underwri ter Defendants and Senior NotesUnderwri ter Defendants ...................... 16

B. FACTUAL ALLEGATIONS ............................ 161. DTA and Net Income .............. , ... , . . , .... 172, RTM Stra tegy ...... . ........ , .............. 243. MF Global ' s Col l apse . , .... , ................. 36C. PROCEDURAL HI STORY . , . , , , . , .... , . . , ............. 38

I I I . LEGAL STANDARD 39A. PLEADING STANDARDS: RULE 12(b) (6) , RULE 8(a) ,

RULE 9(b) , AND THE PSLRA ........... , .... , . , , ... 40B. THE EXCHANGE ACT . , ............ , , , . , , . , . , ....... 421. Sec t ion 10(b) and Rul e 10b-5 . , ...... , . . , , ... 42

a. Misstatements or Omissions of Mater ia l Fact .................................. 44b. Sc ien te r .............................. 512. Sect ion 20(a) ............................... 54

Case 1:11-cv-07866-VM Document 567 Filed 11/12/13 Page 1 of 53


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C. THE SECURITIES CT 571. Sec t ion 11 and Sec t ion 12(a) (2) 572. Sect ion 15 (a) 59IV. DISCUSSION 60

A. PLEADING ST ND RDS 601. Exchange Act Claims 602. Secur i t i e s Act Claims 64B. M TERI L MISST TEMENTS OR OMISSIONS 671. DT and Net Income 67

a . Whether the Statements about DT AreOpinion 68b. Whether the C C Pleads Subjec t ive andObject ive Fa l s i t y 72c. Bespeaks Caut ion 772. RTM Stra tegy 80a. False o r Misleading S ta tements 81b. Bespeaks Caution / PSLRA Safe Harbor . . 86

C. EXCH NGE CT DEFENSES 871 . Strong In ference of Scien te r 872. Control Persons Claims 93D. SECURITIES CT DEFENSES 941. Li ab i l i t y for Forms 10-Q 942. Reliance on Audited Statements 963 . Evidence of Purchase 994 . Cont ro l Persons Claims 103

v OR ER 103

Lead Pla in t i f f s The Virgin ia Retirement System and HerMaj es ty The Queen In Right Of Alber ta , a long w i th severa lo ther named p la in t i f f s (co l l ec t ive ly , "Pla in t i f f s " ) ,ind iv idua l ly and on beha l f o f a l l o ther s s imi la r ly s i tua ted( the "Class") , f i l ed t h i s Consolidated Amended Secur i t i e sCla ss Ac ti on Complaint ( the "CAC") agains t defendants Jon

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S. Corzine ( Corzine ) , J . Randy MacDonald ( MacDonald ) ,and Henri J . Steenkamp ( Steenkamp i co l l ec t ive ly , the

Officers o r the Off icer Defendants ) defendan ts David

P. Bolger , Ei leen S. Fusco, David Gelber , Mart in J . Glynn,Edward L. Goldberg, David I . Schamis, and Robert S. Sloan( co l lec t ive ly , the Independent Direc to rs o r theIndependent Direc to r Defendants ) i 1 defendan ts Ci t ig roup

Global Markets Inc . , Deutsche Bank Secur i t i e s Inc . , GoldmanSachs Co. J .P . Morgan S ecu r i t i e s LLC, Merr i l l , Lynch,Pierce , Fenner Smith Incorpora ted , and RBS S ecu r i t i e sInc. ( co l lec t ive ly , the Underwri ters o r the Underwri terDefendants ) and defendants BMO Cap i t a l Markets Corp. ,Commerz Markets LLC, J e f f e r i e s Company, Inc . , LebenthalCo., LLC, Nat ix i s S ecu r i t i e s North America Inc . , Sandler0 ' Nei l l Par tners L. P. and U. S. Bancorp Investments ,Inc . ( co l lec t ive ly , the Senior Notes Underwri ters o r the

Senior Notes Underwri ter Defendants, , ) .2P l a i n t i f f s ' four teen-count C C (Dkt. No. 330) a s s e r t s

v io l a t i o n s of Sec t ion 10(b) of the S ecu r i t i e s Exchange Act1 The Off icer Defendants and the Independent Director Defendants are,col lect ively, the Individual Defendants.2 The Independent Director Defendants, the Underwriter Defendants, andthe Senior Notes Underwriter Defendants are , col lect ively, theSecuri t ies Act Defendants. All defendant groups the Off icerDefendants, the Independent Director Defendants, the UnderwriterDefendants, and the Senior Notes Underwriter Defendants arecol l ec t ive ly refer red to as Defendants.

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o f 1934 ( the Exchange Act ) , 15 U.S.C. 78j (b) ( Sec t ion10(b) ) Rule 10b-5 promulgated thereunder , 17 C.F.R. 240.10b-5 ( Rule 10b-5 ) Sec t ion 20(a) of the Exchange

Act , 15 U.S.C. 78t(a) ( Sec t ion 20(a) ) Sec t ion 11 o fthe Se c u r i t i e s Act of 1933 ( the Secur i t i e s Act ) , 15U.S.C. 77k ( Sec t ion 11 ) Sec t ion 12 (a) (2) of theSe c u r i t i e s Act, 15 U.S.C. 771 a) (2) ( Sec t ion 12(a) (2) )and Sec t ion 15(a) o f the Se c u r i t i e s Act , 15 U.S.C. 77o(a)( Sect ion 15 (a) ) Defendants moved to d ismiss a l l countso f the C C see Dkt. Nos. 3 5 7 , 3 6 0 , 3 6 4 , 3 6 6 , 3 6 8 , 3 7 3 ) ,and t he pa r t i e s have fu l l y br ie fed t he motions . 3

3 The Court has reviewed the pa r t i e s ' f i l ings in t h i s matter : Memorandumof Law in Support of Defendant Jon S. Corzine 's Motion to Dismiss theConsolidated Amended Secur i t i e s Complaint, dated October 19, 2012( Corzine's Motion ) (Dkt. No. 369) j Memorandum of Law in Support ofDefendant J . Randy MacDonald's Motion to Dismiss, dated October 19,2012 ( MacDonald's Motion ) (Dkt. No. 361 j Memorandum of Law inSupport of Henri Steenkamp's Motion to Dismiss the Consolidated AmendedSecur i t i e s Class Action Complaint, dated October 19, 2012 ( Steenkamp'sMotion ) (Dkt. No. 374); Memorandum of Law i n Support of theIndependent Direc tors ' Motion to Dismiss the Consolidated AmendedSecur i t i e s Class Action Complaint, dated October 19, 2012 ( IndependentDirec tors ' Motion (Dkt. No. 358); Memorandum of Law in Support ofUnderwriters ' Motion to Dismiss, dated October 19, 2012( Underwriters' Motion ) (Dkt. No. 365) j Memorandum of Law in Supportof the Senior Notes Underwriters ' Motion to Dismiss the ConsolidatedAmended Secur i t ies Class Action Complaint, dated October 19, 2012( Senior Notes Underwriters ' Motion ) (Dkt. No. 367 j Pla in t i f f s 'Omnibus Opposit ion to Defendants ' Motions to Dismiss, dated December18, 2012 ( P la in t i f f s ' opposi t ion ) ; Reply Memorandum of Law in Supportof the Officer Defendants ' Motions to Dismiss the Consolidated AmendedSecur i t i e s Complaint, dated February 1 ,2013 ( Officers ' Reply ) (Dkt.No. 454); Defendant Randy J . MacDonald's Reply Memorandum of Law i nFurther Support of His Motion to Dismiss the Amended Complaint, datedFebruary 1, 2013 ( MacDonald's Reply ) (Dkt. No. 448) Reply Memorandumof Law in Further Support of the Secur i t i e s Act Defendants' Motions toDismiss, dated February 1, 2013 ( Secur i t ies Act Defendants' Reply )(Dkt. No. 450); Supplemental Reply Memorandum of Law i n Further Supportof the Underwriters ' and the Senior Notes Underwriters ' Motion to

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I INTRODUCTIONI f ever there was a federal secu r i t i e s fraud case that

offered the par t ies a unique opportunity to depart fromscr ipted l i t i g a t i o n s t ra tegy and give Rule 1 of the FederalRules of Civi l Procedure a fa i r chance, t h i s was i t : anact ion tha t could have served as a prime candidate forl i t igan t s to t e s t tha t exceedingly ra re prospect .

At the i n i t i a l conference on t h i s matter the Courtl ikened the events surrounding the catas t rophic col lapse ofM Global Holdings Limited ( MF Global or the Company )in the closing days of October of 2011 to a massive t r a inwreck in which thousands of people passengers , crew,bystanders , and others were ser ious ly in jured uponsudden impact with a force the v ic t ims could not seecoming. As Pla in t i f f s r e l a t e the events, a t theculmination of what occurred a t M Global in the course ofa few days, $1.6 b i l l i on had disappeared from the company.Cash from customer accounts could not be found. In i t i a l ly ,no one could expla in what happened to the money. Muchl a t e r on, i t s t r a i l was t raced through c ircui tous

Dismiss , dated February 1, 2013 ( Underwri ters ' and Senior NotesUnderwr i t e rs ' Reply ) (Dkt. No. 451) ; and Reply Memorandum of Law inFur ther Suppor t of the Independent Direc to r s ' Motion to Dismiss theConsol idated Amended Secur i t i e s Class Act ion Complaint , dated February1, 2013 ( Independent Direc to r s ' Reply ) (Dkt. No. 452) .

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in te rna t ional channels to M Global corporate accounts ,where the funds had been improperly commingled and used tocover quest ionable company t ransac t ions .

The Cour t s t r a in wreck analogy was meant as a hintgiving a form of guidance. As the doct r ine of res ipsaloqui tur suggests , when an unusual accident s t r ikes duringthe par t i cu la r defendant s watch and contro l over thecircumstances, espec ia l ly in a case of immense magnitudesuch as the disas te r a t i ssue here, some fac ts about thecalami ty s proximate cause may be presumed: a t minimum tha tsomeone somewhere did something wrong - - and presumably notanyone di rec t ly hurt by the misfortune. Bearing th i spremise in mind as a s ta r t ing point , the Cour t sobservat ion suggested a prac t i ca l framework within whichthe par t i es could examine the lega l i ssues the case ra i sesand consider pursuing the exceptional route to the mostspeedy, economical, and jus t resolut ion poss ible . With theassumption up f ront tha t something here went t e r r ib ly awry,the par t i es could more eas i ly turn to the search forre levant evidence, thus enabl ing them much sooner to sor tout l egal i ssues and to apport ion respons ib i l i ty in amanner consis ten t with the fu l l e r record. Unfortunately,

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the suggest ion of such an economical shortcu t held no sway.Apparently, e f f ic iency was not in the cards .

And so, before fur ther inves t iga t ion in to Pla in t i f f s

claims as to what se t in motion such an extraordinary chainof events , Defendants seem convinced tha t no one named int h i s lawsuit could poss ib ly have done anything wrong. Soconf ident are they of the va l id i ty of th i s percept ion tha t ,a t what must have amounted to an enormous expendi ture ofmoney, t ime and energy,4 they seek a court ru l ing dismissingthe complaint in i t s ent i re ty , thus barr ing any discoverytha t might shed l igh t on remaining unknowns tha t bearmomentous consequences for the vic t ims who have sufferedthe losses .

MF Globa l s demise, however, i s not a completemystery. In t h e i r CAC Pla in t i f f s compiled an extens ivefactual rec i t a t ion , which the Court must accept as t rue forthe purposes of ru l ing on Defendants motions, comprising695 paragraphs, f i l l i n g 218 pages, and pleading 14 claimsof unlawful conduct a r i s ing from the events leading to theeventual dis in tegra t ion and bankruptcy of MF Global onOctober 31, 2011 . As de ta i led below, P la in t i f f s4 Defendants numerous motions and r ep l i es generated 184 pages ofbrief ing memoranda, not counting the accompanying voluminousdeclara t ions and exhibi ts .

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a l l ega t ions suggest a long, knowing, and consis ten t courseof act ion on the par t of the var ious Defendants, wrongfulconduct tha t cumulat ively produced the harmful outcome tha t

came to pass. Moreover, t h i s account i s not based on purespecula t ion o r the t rad i t iona l pleading foundation groundedpr imar i ly upon informat ion and be l i e f . Rather, Pla in t i f f sport rayal of the fac t s possesses an added measure ofr e l i ab i l i t y and p laus ib i l i t y . I t draws heavi ly from thepubl ic record of informat ion generated by var iousinvest iga t ions performed by government regula tors andcongressional committees. s

As highl ights of the most sa l i en t of Defendantswrongful ac ts , Pla in t i f f s asse r t tha t MF Global: in f l a t edi t s pro f i t s by recording defer red t ax a sse t s on i t s balanceshee t even in l igh t of evidence, known to the Officers ,tha t the Company would never rea l i ze those asse t s ; engagedin a h igh- r i sk s t ra tegy of inves t ing in European sovereign

Pl a i n t i f f s make use o f repor ts i s sued by the Trus tee fo r the SIPALiquida t ion of MF Global Inc . , the Trus tee for the Chapter 11Bankruptcy of MF Global Holdings Ltd. , and the United States TreasuryDepar tment s Office of Financ ia l Research, and o f hear ings conductedbefore the United Sta tes House of Representa t ives Committee onAgr icul ture , the United Sta tes Senate Committee on Agricul ture ,Nut r i t ion , and Fores t ry , and the United Sta tes House o f Representa t ivesFinanc ia l Services Subcommittee on Overs ight and Invest igat ion . (SeeC C 2.) In eva lua t ing a motion to dismiss , the Court may considerany documents c i t e d and r e l i ed upon o r incorpora ted by reference in thecomplaint as the fac tual sources of the pleadings . See Chambers v.Time Warner, Inc . , 282 F.3d 147, 152 (2d Cir . 2002).

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debt while simultaneously conceal ing the s ize of and r i skposed by those investments; repea tedly increased i t sEuropean sovere ign debt investments, in sp i t e of concernsexpressed on numerous occasions by i t s chief r i skassessment off icer and in vio la t ion of the company's ownt rad ing l imi ts t rad ing l imi t s tha t s ta r ted a t 500mil l ion and with in 15 months exceeded 6 b i l l ion inexposure; undertook t h i s r isky investment s t ra tegy despi tenumerous in te rna l reports tha t ind ica ted a lack ofsuf f i c i en t in te rna l cont ro ls to manage M Global ' sl i qu i d i t y and capi t a l requirements; f i red a chief r i skof f i ce r who quest ioned whether M Global s new investments t ra tegy was prudent and replaced him with another off icerwho i n i t i a l l y supported the new s t ra tegy, but who l a t e ra lso voiced s imi lar warnings about the company's f inancia lcondit ion; and used in t ra-day t ransfers from various MGlobal accounts , including those involving customer funds,to cover increas ing l i qu i d i t y demands.

Despite these di re s igns of mounting cr i s i s , M Globalcontinued to i ssue secu r i t i e s in publ ic exchanges,repeatedly assuring investors tha t everything a t theCompany was running smoothly, tha t t possessed su f f i c i en tl iqu id i ty to cover i t s f inancia l exposure, and tha t t had

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put in place s t rong in te rna l cont ro ls suf f ic ien t to checkaga ins t any management fa i lu res .

P la in t i f f s purchased M Global secur i t i es i ssuedwhile, unknown to them, these circumstances were in te rna l lyunfolding and the company was unraveling. They broughtsu i t against the numerous Defendants they claim were awareof the events and cont r ibuted to bringing them about ,spec i f i ca l ly the M Global off icers , directors , andunderwri ters - a l l twentythree of them.

Defendants, a l l twentythree of them, now ask theCourt to dismiss the complaint every claim in i t .Curiously, they suggest tha t Pla in t i f f s exhaustivepleadings give Defendants both too much deta i l and tool i t t l e more information than necessary to present aconcise s tatement of the facts , and yet not enough to giveDefendants f a i r not ice of why they are being sued. ByDefendants account , and giving a broad in te rpre ta t ion tothe logic and end resu l t of the i r theor ies , nothinghappened a t M Global for which a s ingle one of the twentythree Defendants could possib ly bear any lega lresponsibi l i ty . As Defendants read the complaint andconstrue the appl icable s ta tu tes , nothing in law or lega ltheory now exi s t s - - not even simple negl igence pr inc ip le s

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under which any of the i nd iv idua l s and e n t i t i e s involvedin M Globa l ' s management, o r in i t s i ssuance o f s e c ur i t i e sdur ing the Company's des t ruc t ion , can be held accountablefo r any of the wrongdoing t ha t P l a i n t i f f s cla im.

The na tu ra l impl ica t ions o f t h i s extreme pe rspec t iveare fa r - reach ing . Defendants ' con ten t ions would suggestt ha t the f a l l o f M Global P l a i n t i f f s por t r ay e i the r neverhappened, or , i f t did occur , t h a t s ince no oneassoc ia ted with the Company played a causal ro le in theevents perhaps the debacle must have been the fa t e fu lwork of superna tura l fo rces , o r e l se tha t the exp lana t ionfo r a spec tacu la r m u l t i -b i l l i o n d o l l a r crash of a globa lcorpora te g ian t i s s imply t h a t s tu f f happensins tan taneous ly , of i t s own accord, wi thout any knowledgeo r causal agency whatsoever by a n y o n e of the manysoph is t i ca ted bus iness execu t ives in charge of thecompany's day to day a f f a i r s . Perhaps worse ye t , a f a i rin fe rence t ha t fol lows from the concept ion of the lawDefendants advocate i s t ha t , even assuming the t r u t h ofeverything P l a i n t i f f s a l lege , what t r an s p i r ed a t MG Global

over the course of the year before the Company's co l l apseincluding the sudden unexpla ined disappearance of $1.6

b i l l i on of customer money rep re sen t s the governing11 -



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indus t ry standard for doing business , the acceptable modelfor how corporate managers should be permit ted to run acompany s a f fa i r s the ordinary course, insula ted fromaccountabi l i ty tha t not only Pla in t i f f s but a lso the publ icshould r igh t fu l ly expect from i s sue rs of secur i t i es . Werethe Court to dismiss the CAC t would ef fec t ive ly have tof ind tha t even assuming the compell ing facts pled here,viewed aga ins t the appl icable standard of review, there i sno viable const ruct ion of law under which Defendantsact ions would give r i se to any plaus ible claim tha t somevio la t ion the secur i t s ta tu tes occurred. Such arul ing would be tantamount to ra i s ing the pleading bar tounat ta inable heights , in essence e levat ing the t e s t so asto demand l eve l s of deta i l s and prec is ion fa r surpassinganything tha t the threshold of federa l secur i t i es laws,or even the Iqbal/Twombly standard, could havecontemplated. To end t h i s prologue on a higher ly r ica lnote, i f on t h i s record as pled Pla in t i f f s cannot make outa plaus ible claim here, they could not make t anywhere.

Accordingly, upon a review of Defendants numerousmotions in the l i gh t of P la in t i f f s account of fac ts whichthe Court accepts as t rue , the Court i s not persuaded by

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Defendants ' arguments. In eva lua t ing the app l ica t ion ofthe law t h a t Defendants argue would al low the outcome theyseek a t t h i s s tage o f the l i t i g a t i o n , the Cou r t s

assessment may be s imply s t a t ed : I t cannot be. Thus, fo rthe reasons s t a t e d below, Defendants ' motions are DENIED.

I I BACKGROUND6

P l a i n t i f f s asse r ted c la ims a r i s e from events t ha t l edto the 2011 col lapse o f MF Global . 7 B r ie f ly s t a t ed ,P l a i n t i f f s a l l eg e t h a t MF Globa l s pub l i c f i l i ngs and thepubl ic s ta tements made by MF Globa l s of f i c e r s mater ia l lymisled i nves to rs in two ways. Fi r s t , P l a i n t i f f s c la im t ha tMF Global f a i l e d to record a va lua t ion al lowance aga ins ti t s Defer red Tax Asse ts ( DTA ) u n t i l October 25, 2011,even though Genera l ly Accepted Account ing Pr inc ip les( GAAP )B requi red MF Global to t ake t ha t va lua t ion

6 Except where otherwise noted expl i c i t ly , the fac tual summary below i sderived from the CAC and the documents c i t ed or r e l i ed upon for thefac ts pled there in , which the Court accepts as t rue for the purposes ofru l ing on a motion to dismiss. See Spool v. World Child I n t l AdoptionAgency, 520 F.3d 178, 180 (2d Cir . 2008) (c i t ing GICC Capi ta l Corp. v.Technology Fin. Grp. , Inc . , 67 F.3d 463, 465 (2d Cir. 1995 i see alsoChambers, 282 F.3d a t 152. Except where spec i f i ca l ly quoted, nofur ther c i t a t i on wil l be made to the CAC or the documents referred toin i t .7 MF Global f i led for bankruptcy on October 31, 2011 and i s not a par tyto th i s act ion .a \\GAAP i s the of f ic ia l standard for accounting accepted by the SEC andi s promulgated n par t by the Financial Accounting Standards Board('FASB') and American In s t i t u t e of ce r t i f i ed Public Accountants( 'AICPA'). CAC 88.)

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al lowance e a r l i e r . Second, P l a i n t i f f s f a u l t MF Global andDefendants fo r miss ta tements and omiss ions r e l a t e d t o theCompany's propr ie ta ry inves tments in European sovere ign

debt through repurchase- to -matur i ty ( RTM ) t r ansac t ions( the RTM St ra tegy ) . According to P l a i n t i f f s , MF Globaland Defendants 1) purposefu l ly concealed the p r o p r i e t a r ynatu re of the RTM t r ansac t ions , (2) mate r i a l l y miss ta tedand f a i l e d to d isc lose how the RTM s t r a t e g y poseds ign i f i can t l i q u i d i t y r i sks to t he Company, and 3misrepresen ted and f a i l e d t o d isc lose weaknesses in MFGloba l ' s a b i l i t y to preven t a l i q u i d i t y c r i s i s of the kindt ha t caused MF Globa l ' s eventual co l l apse .A. THE PARTIES

1. Pl a i n t i f f s and the ClassPl a i n t i f f s a s se r t t h a t they b r ing t h i s ac t ion

i nd iv idua l ly and on behal f o f a proposed c l a s s o f personsand e n t i t i e s who purchased o r otherwise acquired c e r t a inin t e r e s t s in MF Global between May 20, 2010 and November21, 2011 ( the Class Per iod ) . (CAC , 1 . The Classcons i s t s o f persons and e n t i t i e s who acquired , dur ing the

Class Period , (1) MF Globa l ' s pub l ic ly t raded s e c ur i t i e s ;(2) MF Globa l ' s common s tock in a June 2010 secondaryof fe r ing ( the Secondary Offer ing ) ; (3) MF Globa l ' s 1.875%

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Conver t ib le Sen ior Notes due February I , 2016 ( the 2016Notes ) , i s sued in February 2011; (4) MF Globa l ' s 3.375%Conver t ib le Sen io r Notes due August I , 2018 ( the 2018

Notes ) , i s sued in Ju ly 2011; (5) MF Globa l ' s 6.25% SeniorNotes due August 8, 2016 ( the Senior Notes ) , i s sued inAugust 2011; and (6) MF Global s e c ur i t i e s through employeebenef i t plans .

2. Off i ce r DefendantsDefendant Corzine served as Chairman o f the MF Global

Board o f Direc to rs ( the Board ) and as Chief Execut iveOff i ce r ( CEO ) of bo th MF Global and MF Globa l ' s broker-dea le r subs id i a ry , MF Global Inc. ( MFGI ), from March 23,2010 to November 4, 2011. Defendant MacDonald served as MFGlobal ' s Chief Financ ia l Off i ce r ( CFO ) from Apri l 2008through March 2011. 9 Defendant Steenkamp served as MFGloba l ' s CFO from Apri l 2011 through the end of the ClassPeriod . The C C a l leges t ha t the Off i ce r Defendants hadaccess to in fo rmat ion about MF Global t h a t was notdisc losed to the publ ic , and t h a t they were a l l involvedin d ra f t ing , producing, reviewing and dissemina t ing the

9 The C C al leges tha t MacDonald served as CFO through Apri l 2011, butMF Global ' s publ ic f i l ings with the SEC, of which the Court can takejud ic ia l not ice , In re Alstom S Sec. Li t ig . {Alstom I l , 406 F.Supp. 2d 346, 352 {S.D.N.Y. 2005l , show tha t MacDonald l e f t tha tposi t ion in March of 2011.

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f inanc ia l s ta tements and o ther r epor t s a t i s sue in t h i scase during t he i r t enure with the Company. CAC 32.)The CAC a l so cla ims t ha t the Off ice r Defendants were able

to and did contro l the content of MF Globa l ' s var ious pressr e leases , SEC f i l i ngs and o ther publ ic s ta tements duringthe Class Period. CAC 33.)

3. Independent Direc to r DefendantsThe Independent Direc tor Defendants each served on MF

Globa l ' s Board during the Class Period. The CAC a l legestha t the Independent Direc tors had access to informationabout MF Global tha t was not disc losed to the publ ic .

4. Underwri ter Defendants and Senior NotesUnderwri ter DefendantsThe Underwri ter Defendants and Senior Notes

Underwri ter Defendants each served as an underwri te r forone o r more of the publ ic of fe r ings a t i s sue: the SecondaryOffer ing , the 2016 Notes, the 2018 Notes, and the SeniorNotes.B. FACTUAL ALLEGATIONS

The CAC ou t l ines two ca tegor ies in which Defendantsmade mater ia l misstatements o r omiss ions: (1) s ta tementsabout MF Globa l ' s DTA and ne t income, and (2) s ta tementsabout MF Globa l ' s r i sk appe t i t e , i n t e rna l contro ls , and

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l iqu id i ty management, par t icu la r ly in l igh t of the RTMStrategy.

1. DTA and Net IncomeDeferred Tax Assets are losses, cred i t s and other tax

deductions that may be used to offse t taxable income in thefuture . CAC 84.) GAAP permits a company to record DTAas asse ts on i t s balance sheet , but only to the extent thecompany 1S more l ike ly than not to rea l i ze the DTA.

Id. The company must take a valuat ion allowance against-- that i s , not count as an asse t on i t s balance sheetthe amount of the DTA that the company i s not l ike ly toreal ize .

GAAP requi res the company to weigh a l l avai lableevidence, both posi t ive and negat ive , to determine whetherthe company should take a valuat ion al lowance against i t sDTA. CAC 92.) That a company suf fered cumulat ivelosses in recent pr ior years i s s ign i f i can t negativeevidence against recording DTA. In the face of suchevidence, the company must have counteract ing pos i t iveevidence in order to support i t s decis ion not to take avaluat ion al lowance against i t s DTA. Such pos i t iveevidence can include tax planning s t ra teg ies i f those

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s t ra teg ies are prudent and feas ible and would resu l t inl a t e r rea l i za t ion of the company s DTA

As of the 2010 f i sca l year , which ended on March 31,2010, MF Global had suffered cumulat ive losses over i t sprevious th ree f i sca l years , both in i t s u. S. opera t ionsand worldwide. During tha t t ime, MF Global primari lyperformed c l ient based commodities broker serv ices andearned income through commission fees and in te res t onc l ien t accounts. As i n t e r e s t ra tes f e l l in the l a t e 2000s,MF Global los t a subs tant ia l pa r t of i t s income base. NewCEO Corzine sought to tu rn around the Company s for tunes byturning MF Global in to an investment bank. The Companyimplemented a plan to complete tha t conversion in three tof ive years .

On May 20, 2010 the f i r s t day of the Class PeriodMF Global i ssued a press re lease to report i t s f inancia l

resu l t s for both the four th quar t e r of the 2010 f i sca l yearand for the fu l l f i sca l year . The press re lease claimedtha t MF Global s f inancia l statements were prepared inaccordance wi th GAAP MF Global did not take a valuat ionallowance agains t i t s DTA In an investor conference ca l lheld tha t same day, MacDonald indicated tha t the DTAs in

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i ssue were not as a t r isk 10 as other deferred tax assetsthat MF Global held. (Decl. of Benjamin E. Rosenberg, Ex.1 a t 6, Dkt. No. 370.) Corzine also fa i led to answer aquestion posed to him about MF Global 's DTA.

In i t s 2010 Form 10-K, f i led with the SEC on May 28,2010 and signed by a l l Individual Defendants, MF Globalagain represented that i t s f inancial statements were inaccordance with GAAP and did not record a valuat ionallowance for $117.9 mil l ion of MF Global 's DTA. MF Globalprovided the following disclosure: We have recordeds ign i f i can t deferred tax assets ref lect ing our expectat ionof using these loss carryforwards against future income.I f we are not able to generate prof i t s in thesejur isdic t ions in future periods, we may be required torecord valuat ion allowances against these deferred taxas s e t s . (CAC 320.) The 2010 Form 10-K acknowledgedthat , under GAAP, [a] valuat ion allowance i s provided fordeferred tax assets when t i s more l ike ly than not thatsome por t ion of the deferred tax assets wi l l not berealized. (CAC 321.) The 2010 Form 10-K did notdisc lose the posi t ive and negative evidence that MF Global

10 The CAC mistakenly quotes MacDonald as saying tha t the DTAs were nota t r i sk . (CAC 317.)

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weighed to conclude t h a t a va lua t ion al lowance was notrequi red .

On August 5, 2010, MF Global i s sued a pre ss r e lease

with i t s f inanc ia l r e su l t s fo r the f i r s t quar te r of the2011 f i s c a l year . The r e su l t s , which c la imed to be inaccordance with GAAP, showed a smal l p ro f i t . In aconference ca l l held t ha t same day, Corzine emphasized t ha tMF Global had re tu rned to p ro f i t ab i l i t y for the f i r s t t imein s ix qua r t e r s on a GAAP bas i s . I CAC 339.) WhileCorzine and MacDonald noted t h a t MF Global would have towri te down some of ts DTA MacDonald assured i nves to rst h a t the remaining DTA was not as a t r i sk . I CAC 340.)The next day, August 6, MF Global f i l ed i t s Form 10-Q fo rthe f i r s t quar te r of the 2011 f i s c a l year with the SEC.The Form 10-Q was s igned by Corzine and MacDonald and a l socon ta ined the f inanc ia l r e s u l t s in the pre ss r e lease ,purpor ted ly in accordance with GAAP.

MF Global made s imi l a r d i sc losures in November 2010( for the second quar te r o f the f i s c a l year) and February2011 ( for the t h i r d quar te r of the f i s c a l year ) . TheCompany cont inued not to record a va lua t ion al lowanceaga ins t i t s DTA and to rep re sen t t h a t i t s f inanc ia ls ta tements were in accordance with GAAP. MF Globa l ' s Form

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10-Q for the t h i rd quarter of f i sca l year 2011, f i l ed withthe SEC on February 3, 2011 and signed by Corzine andMacDonald, spec i f i ca l ly noted tha t MF Global had not takena valuat ion allowance against i t s DTA because the Companybel ieves tha t t i s more l ike ly than not tha t thesedeferred tax asse t s wi l l be rea l ized in the fu tureAlthough rea l i za t ion i s not assured, the Companyant ic ipa tes tha t rea l i za t ion of these asse ts wi l l occur.(CAC 373.)

In May 2011, MF Global disc losed f inancia l informationfor the fourth quarter of f i sca l year 2011 and for the fu l lf i sca l year; again, the f inancia l information waspurportedly prepared in accordance with GAAP. On i t s 2011Form 10-K, f i l ed with the SEC on May 20, 2011 and signed bya l l Individual Defendants except MacDonald, MF Globalreported a DTA valuat ion allowance of $19.5 mil l ion and anet DTA of $108.3 mil l ion The 2011 Form 10-K inc luded thefol lowing disc losure about DTA, ident ica l to the disc losureon the 2010 Form 10-K: We have recorded s ign i f i can tdeferred tax asse ts re f l ec t ing our expecta t ion of usingthese loss carryforwards against future income. I f we arenot able to generate prof i t s in these ju r i sd ic t ions infuture per iods, we may be required to record valuat ion

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allowances against these deferred tax asse t s . CAC390.

The 2011 Form 10-K, unl ike the 2010 Form 10-K, offereda ju s t i f i c a t ion for MF Global 's decision not to take avaluat ion allowance against the fu l l DTA. The 2011 Form10-K acknowledged that MF Global was in a three-yearcumulat ive pre- tax loss pos i t ion a t March 31, 2011 in manyju r i sd ic t ions in which [ i t did] business, and that such aloss posi t ion i s considered negative evidence in assessingthe rea l i zab i l i ty of deferred tax asse t s . CAC 391.)But the Company concluded that the weight given th isnegative evidence i s diminished due to s ign i f i can t nonrecurr ing loss and expense items recognized during thepr ior three years. MF Global a lso iden t i f i ed

suff ic ient posi t ive evidence to overcome th i s negat iveevidence that f e l l in to three ca tegor ies :

The f i r s t i s the reversa l of exis t ing taxabletemporary dif ferences . Second, we forecast suf f ic ien ttaxable income in the car ry forward period. Webel ieve that future projec t ions of income can bere l i ed upon because the income forecasted i s based onkey dr ivers of pro f i t ab i l i ty that we began to seeevidenced in f iscal 2011. Most notable in th i s regardare plans and assumptions re la t ing to the s ign i f i can tchanges to our compensation s t ruc ture implemented inf i sca l 2011, increased t rading volumes, and othermacro-economic condi t ions. Third, in cer t a in of ourkey operat ing ju r i sd ic t ions , we have a suf f ic ien t taxplanning s t ra tegy which includes poten t i a l sh i f t s ininvestment pol ic ies , which should permit rea l i za t ion

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of our deferred tax assets . Management bel ieves th i ss t ra tegy i s both prudent and feas ible .

CAC 392.) MF Global ' s Form 10-Q for the f i r s t quarterof f i sca l year 2012, f i l ed with the SEC on August 3, 2011,included subs tan t i a l ly the same disc losures .

The CAC a t tacks the suff ic iency of each category ofpos i t ive evidence. According to the CAC, GAAP rulesgeneral ly do not permit projec t ions of future income toovercome the negative evidence from cumulat ive losses inrecent years . The CAC a lso a l leges tha t MF Global ' s newinvestment s t ra tegy, descr ibed in de ta i l below, was high-r i sk and unsusta inable , such that MF Global ' s project ionsof future income were not suf f ic ien t ' pos i t ive evidence ' toavoid taking a fu l l valua t ion al lowance aga ins t theCompany's U. S. DTA. CAC 121.)

The CAC a lso claims tha t projec t ions of increasedincome from MF Global ' s changes in compensation s t ruc ture

were unre l iable and, more important ly , could not haveoffse t the Company's DTA. CAC 122.) The CAC a l legesthat MF Global ' s increased hi r ing in cer ta in areas of f se tlayoffs in o ther areas, such tha t the Company did notachieve i t s t a rge t compensat ion-to-revenue r a t io .

Final ly, the CAC notes tha t tying MF Global 's taxplanning s t ra teg ies to i t s sh i f t s in investment pol ic ies

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could not offse t the Company's DTA. To the contrary, theCAC claims, the Company was simply unable to engage in any' s h i f t s in investment pol ic ies ' without f i r s t incurrings igni f icant addi t ional l iqu id i ty s t ra ins or lossesnei ther of which was 'prudent ' or ' f e a s ib l e . ' CAC135.)11

Eventually, MF Global determined tha t t could nolonger avoid tak ing a valuat ion allowance against i t s DTA.On October 25, 2011, MF Global i ssued a press re lease withi t s f inancia l resu l t s for the second quar t e r of f i sca l year2012. The Company reported a loss of $191.6 mill ion.valuat ion allowance of $119.4 mil l ion agains t MF Global ' sDTA accounted for more than half of the loss . According toSteenkamp, most of tha t valuat ion allowance was takenagainst the Company's U.S. DTA. The CAC a l leges tha t MFGlobal 's disclosure of i t s (long overdue) valuat ionallowance against i t s U.S. DTA s ign i f i can t ly cont r ibuted tothe Company's col lapse . CAC 87.)

2. RTM Stra tegyWhen Corzine was named MF Global ' s CEO, he faced

pressure from cred i t ra t ing agencies to demonstrate tha t11 Further to the point , Pla in t i f f s claim, an MF Global in te rna ldocument created in September 2011 and presented to the Board inOctober 2011 suggests tha t any sh i f t s in investment pol ic ies wouldcrea te la rge losses , ra the r than gains . CAC 138.)

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the Company could be p ro f i t a b l e in the fu tu re . To achievet h i s goal Corzine implemented the RTM Stra tegYI a l so knownwith in MF Global as the Corzine Trade beginning in Ju ly

2010. As MF Global began to implement the RTM Stra tegy Corzine emphasized severa l t imes t h a t the Company s newbusiness p lan was done to suppor t the Companyl s c l i e n t -based se rv ices . The s t r a t e g y involved coordina t ion betweenMFGI and MF Global U. K. Limi t ed ( MFG-UK which was MFGlobal s a f f i l i a t e in the United Kingdom. Pl a i n t i f f sa l lege t ha t Corzine communicated with MFGI and MFG-UKpersonnel d i r e c t ly to ca r ry out these RTM t r ansac t ions . ICAC 155.)

The RTM Stra tegy worked as fol lows: f i r s t l MFG-UKpurchased European sovere ign debt s e c ur i t i e s on the LondonClear ing House ( LCHII exchange. MFG-UK then so ld thoses e c ur i t i e s to MFGI. Next MFGI and MFG-UK ente red i n to anRTM agreement. MFGI thus so ld the s e c ur i t i e s to MFG-UKwhile the f i rms s imul taneous ly ente red a con t rac t fo r MFGIto repurchase the s e c ur i t i e s on the s e c ur i t i e s matur i tydates l a t the same pr ice plus a pre nego t i a t ed i n t e r e s t

payment. MFG-UKI which now owned the s e c ur i t i e s thenengaged in a s imi l a r repurchase t r an s ac t i o n with acoun terpar ty through the LCH. The repurchase da te on t ha t

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t ransact ion was scheduled for two days before thesecu r i t i e s matur i ty date. MFG UK thus bore the r i sk ofdefaul t on the secur i ty , and MFGI was responsible formaintaining l iqu id i ty to cover the possib le defaul t . MFGIwas also expected to provide MFG UK with funds to covermargin ca l l s or ant ic ipa ted margin ca l l s from the LCH.

The RTM Stra tegy provided MF Global with severalaccount ing advantages. Fi r s t , the RTM t ransac t ions couldbe counted as sa les , ra ther than as loans, even though MFGIand MFG UK were cont rac tua l ly obl iga ted to repay the f inalcounterpar ty for the secur i t i es . The obl iga t ion to repaywas thus de-recognized t did not appear as al i a b i l i t y on MF Global ' s balance sheet . The RTMt ransact ions a lso allowed MF Global to report thet ransact ions as gains a t the time of the sa le ,notwithstanding the subsequent obl iga t ion to repay the sa lepr ice . Final ly , because no l i a b i l i t y appeared on MFGlobal ' s balance sheet , the RTM t ransac t ion did not fac torin to MF Global 's value-a t - r i sk ( VAR ca lcula t ions .Pla in t i f f s al lege tha t the RTM Stra tegy thus allowed MFGlobal to invest in high-r i sk asse t s while keeping themoff i t s balance sheet , f rontload gains and tou t misleadingVAR metr ics a l l of which crea ted the a r t i f i c i a l

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appearance of a turnaround in the Company's a i l ingbusiness . (CAC, 146.)

The RTM Stra tegy also exposed MF Global to marketr i sk , l iqu id i ty r i sk and capi ta l r i sk . CAC , 160.)Market r i sk exis ted due to the poss ib i l i t y tha t thesecur i t i es might defaul t or be res t ruc tured. MF Globalalso was subject to margin ca l l s from counterpar t ies and toregulatory capi t a l reserve requirements. When the secur i tyt raded in the RTM t ransac t ion f e l l in value, MFGI wassubject to corresponding margin ca l l s tha t s t ra inedl iqu id i ty . A fa i lu re to post the requi red margin couldcause MFGI to defaul t on the t ransac t ion and requi re MFGlobal to repurchase the secur i ty a t tha t t ime.

As par t of i t s r i sk management s t ra tegy, MF Global ' sBoard imposed l imi t s on t rading of European sovereign debt .In March 2010, tha t t rading l imi t was $500 mill ion.Corzine sought to increase tha t l imi t , and his ef for t s weremet with concern by then-Chief Risk Officer ( CRO ) MichaelRoseman ( Roseman ). Roseman eventua l ly agreed to increasethe t rading l imi t to $1 b i l l ion in around Ju ly or August2010.

By mid-September 2010, MF Global had breached tha tt rading l imi t . Corzine sought to increase the t rading

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l imi t to $1.5 b i l l ion and also took s teps to move the RTMt ransact ions off of MF Global ' s balance sheet . Rosemanagain expressed concern over MF Global ' s exposure. Butdespi te Roseman's concern, MF Global ' s exposure tosovere ign debt continued to increase , reaching $3.5 to $4.0b i l l i on in l a t e October 2010 even though the t radingl imi t had not yet been increased.

Corzine asked Roseman to request from the Board anincrease in the t rad ing l imi t to $4.75 b i l l i on . Rosemanexpressed concerns about the capi t a l and l iqu id i ty r i sksassociated with the increase , and he presented thoseconcerns both to Corzine and to the Board. At a November2010 meeting, the Board approved the request and increasedthe t rading l imi t to $4.75 b i l l i on .

Even a f t e r the November 2010 Board meeting, Rosemancontinued to express his concerns to Corzine. MF Globaleventua l ly dismissed Roseman as CRO in ea r ly 2011. Severalformer MF Global employees bel ieve tha t Roseman was f i redbecause he warned senior management tha t the Company wastak ing on too much r i sk . CAC 187.) Other MF Globalemployees shared Roseman's concerns. But the person hi redto replace Roseman, Michael Stockman ( Stockman ), publ ic lysupported Corzine ' s r i sk management s t ra tegy.

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In mid-January 2011, the MF Global Board forbade anyinc rease in the European sovere ign debt por t fo l io withoutexpress permiss ion from the Board. Yet on February 3,2011, MF Global exceeded t h a t l im i t ; Corzine , though madeaware o f the breach, did not inform the Board. Ins tead , inmid-February 2011, Corzine and Stockman sought an inc reasein t he t r ad ing l i m i t from $4.75 b i l l i o n to $5 b i l l i on , witha temporary inc rease to $5.8 b i l l i o n un t i l March 31, 2011.Some Board members expressed concerns about the l eve l ofexposure , but the Board approved the inc rease . CAC ,200. In March 2011, the Board gran ted a reques t fromCorzine and Stockman to extend the temporary $5.8 b i l l i o nl imi t u n t i l September 2011.

By Apri l 27, 2011, the t r ad ing l i m i t s had beenbreached ye t again . Corzine d i r ec t ed Stockman to prepare areques t to inc rease the European sovere ign debt t r ad ingl imi t to $9.75 b i l l i o n . Stockman, fo r the f i r s t t ime,expressed concerns to Corzine about MF Globa l s a b i l i t y tosuppor t i t s RTM St ra tegy . The Board approved the reques tonly in par t , inc reas ing the t r ad ing l imi t to $6.6 b i l l i on .

The Board heard othe r concerns about MF Globa l s r i s kmanagement dur ing the Class Per iod . An Apri l 2010 repor tfrom the Company's In te rna l Audit Department ( the lAD )

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noted tha t technological l imi ta t ions prevented MF Globalfrom accurate ly forecas t ing l iqu id i ty r i sks . A May 2010repor t from the lAD expressed concerns with MF Global ' sa b i l i t y to handle the r i sks associa ted with i t s expansionbeyond i t s t rad i t iona l c l i en t fac i l i t a t ion serv ices .Months l a t e r , an October 2010 report from the lAD noted thesame problems. The October 2010 report expressed concerntha t the absence of r e l i ab l e l i qu id i ty report ing tools andthe excessive dependence on ass i s t an t t r easure r Edith0 ' Brien ( 0 ' Brien ) to manage l iqu id i ty i ssues representedr i sks to MF Global . CAC , 211.)

Technological concerns and l imi ta t ions la s ted in to2011. In March 2011, an lAD report noted tha t someregula tory reports were produced through spreadsheets tha twere typ ica l ly not secure and [were] suscept ib le to humaner ror . CAC , 212.) A June 2011 lAD repor t re fe r red tol iqu id i ty moni tor ing and forecas t ing as manual andl imited and also iden t i f i ed numerous and s ign i f i can t gapsbetween the pol icy and exis t ing prac t ices . CAC , 213.)Pla in t i f f s al lege tha t these i ssues were not addressed12 and

12 Indeed, Pla in t i f f s al lege tha t Stockman and Corzine refused toauthorize an enhancement to MF Global 's r i sk management system tha twould improve i t s technological in f ras t ruc ture . CAC 197-98.)- 30



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tha t fa i lu res in l iqu id i ty monitoring di rec t ly led to MFGlobal ' s downfall .

Pla in t i f f s a l lege tha t in l igh t of the r i sks tha t theRTM Strategy posed to MF Global and in l i gh t of theCompany's r i sk management weaknesses, MF Global ' s publ icsta tements on those subjects were inadequate . In MFGlobal ' s May 20, 2010 press re lease Corzine suggested tha tthe ompany would seek to expand i t s ac t iv i t i e s only a f te r

ensur[ing] the appropr ia te cont ro ls [were] in place.CAC 325.) Corzine made s imilar representa t ions on a May

20, 2010 investor conference ca l l .MF Global ' s 2010 Form 10-K touted the Company's r i sk

management. The form also recognized tha t any news t ra teg ies would be conducted within tha t r i sk managementscheme:

We expect to increas ingly recognize t rad ing income aspar t of our ongoing ac t iv i ty for our c l ien ts invarious markets, and to se lec t ive ly increase our r i sktaking, genera l ly making fu l le r use of our curren tr i sk appet i te and operating within the author i tydelegated by our board of di rec tors .

CAC 330.) The 2010 Form 10-K s ta ted tha t MF Globalwould consider the inherent operat ional r i sk in newproducts , systems, and business ac t iv i t i e s as they aredeveloped or modified. CAC 332.) Final ly the 2010Form 10-K assured inves tors that MF Global would maintain

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suf f i c i en t capi t a l and l iqu id i ty to respond to the r i sks ofmarket events . The same disc losure appeared in severa l ofMF Global /s subsequent SEC f i l ings .

MF Global /s 2011 Form 10-K contained s imilardisc losures . The form emphasized tha t MF Global /s newinvestment s t r a t eg i e s would take place within theauthor i ty delegated by [ i t s ] Board of Directors . CAC400.) The 2011 Form 10-K discussed how MF Global ' sOperat ional Risk Management Framework establ i shes ane f fec t ive environment'l to c rea te r i sk cont ro ls and to helpensure t ransparency, awareness, and accountabi l i ty ofr i sks . CAC 407.) According to the 2011 Form 10-K, MFGlobal operated within defined r i sk mandates as delegatedby the RO and t racked compliance through end-of-day andin t ra-day monitoring. (CAC, 409.)

The Officer Defendants also s t re ssed MF Global ' scommitment to r i sk management in var ious other publ icsta tements . For example, in an August 5, 2010 earningsca l l , MacDonald s ta ted tha t the Company maintains a s trongl iqu id i ty posi t ion. CAC 346.) Corzine and MF Globalalso downplayed the r i sks tha t the Company faced. Corzinet o ld inves tors tha t the Company was not t aking enormousmarket r i sk in execut ing [ i t s ] strategy 1I CAC 349.)

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MF Global ' s August 6, 2010 Form 10-Q s imi la r ly s t a t edthat MF Global ' s business does not general ly present asubstant ia l cash l iqu id i ty r i sk and that MF Global would

have suf f ic ien t l iqu id i ty to sa t i s fy a l l of [ i ts ] expectedcash needs for a t l eas t one year without access to thecapi ta l markets. CAC 350.) The same disclosureappeared in a l l of MF Global 's SEC f i l ings for theremainder of the Class Period. The Off icer Defendants madeother publ ic s tatements to the same ef fec t that MFGlobal had suf f ic ien t l iqu id i ty to withstand potent ia ls t resses on i t s various investment posi t ions.

MF Global did not openly acknowledge the exposure andr i sk resul t ing from the RTM Stra tegy unt i l i t s February 3,2011 Form 10-Q. The disclosure came in response to arequest from MF Global 's outside auditor ,PricewaterhouseCoopers LLP for the Company to publ ic lydisclose i t s RTM exposure. That disclosure read asfollows:

The Company also enters in to secur i t i es financingt ransact ions that mature on the same date as theunderlying col la te ra l . The Company accounts for theset ransact ions in accordance with the accountings tandard for t ransfers and servicing and recognizes again or loss on the sale/purchase of the col la te ra lassets and records a forward commitment. The Companyderecognizes the col la te ra l asse t s as sold when thet ransact ions are accounted for as sales andrecognizes the col la te ra l asse t s as purchased when the

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t ransact ions are accounted for as purchases . In theset ransact ions the Company has exposure to the r i sk ofdefaul t of the i s sue r of the underlying col la te ra lasse t s such as u.s. government secu r i t i e s or Europeansovereign debt .

CAC , 384.) The February 3, 2011 Form 10-Q iden t i f i ed7.56 b i l l i on in derecognized RTM t ransac t ions but

conta ined no fu r the r discuss ions of the spec i f ic r i sks tha tthe RTM Stra tegy posed. Similar ly the 2011 10-K and theAugust 3, 2011 Form 10-Q iden t i f i ed the value ofderecognized RTM t ransact ions but did not fur ther d isc loseany r i sks from those t ransact ions .

MF Globa l / s disc losure in i t s 2011 Form 10-K garnereda t ten t ion from federa l regula tors . The Financia l Indust ryRegulatory Authori ty (\\FINRA ) expressed i t s concern tha tbecause the RTM t ransact ions exposed MF Global to marketand c redi t r i sks MF Global might not have enough capi t a lreserves to cover r i sks caused by the RTM Stra tegy and tocomply with SEC rules . MF Global res i s t ed FINRA's at temptsto change MF Global s capi t a l requirements , and Corzinemade a persona l appeal to SEC regula tors . But the SECaccepted FINRA's in te rpre ta t ion of the SEC ru les , and FINRArequired MF Global to reserve fur the r capi t a l to cover theRTM t ransact ions . On September 1 2011 MF Global f i l ed a

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Form 10-Q/A tha t amended i t s previous Form 10-Q to complywith FINRA's ru l ing .

What MF Global did not disc lose , Pla in t i f f s al lege , istha t MF Global met those capi t a l requirements only throughintra-company t ransfers . Moreover, the CAC claims, therequi red change had a devas ta t ing (but undisclosed) impacton the Company's al ready-exis t ing l i qu id i ty problem andforced MF Global to re ly on more in t ra-day t ransfers tomeet l i qu i d i t y demands. (CA C, 236. ) The in t ra-dayt r ans fe r s included use of funds associa ted with MF Global ' st rad i t iona l fu tures commission merchant ( FCM ) ac t iv i t i e s

including from accounts involving customer funds.At the same t ime, MF Global and i t s of f i ce r s sought to

assure investors tha t the RTM Stra tegy posed minimal r i sks .At a Ju ly 9, 2011 conference, Corzine suggested tha t MFGlobal ' s princ ipal t rad ing ac t iv i t i e s made the Company

l ess r i sky . CAC , 422.) In a July 28, 2011 earningsconference ca l l , Steenkamp claimed tha t MF Global

bel ieve [d] market r i sk to [the European sovereign debt]t rades i s minimal as these are held to matur i ty . CAC ,424. )

Indeed, Corzine and Steenkamp held f i rm on theseclaims even while MF Global was on the br ink of col lapse .

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On October 24, 2011, MF Global issued a l e t t e r fromSteenkamp tha t declared tha t MF Global ' s RTMs posed a

l imited market r i sk . CAC , 447.) And on October 25,2011, Corzine s ta ted on an investor conference ca l l tha t

the s t ruc ture of the [RTM] t ransact ion[s] themselvesessent i a l ly el iminates market and f inancing r i sk . CAC ,452.

3. MF Global ' s CollapseJus t before MF Global f i l ed i t s October 25, 2011 Form

10-Q in which the Company took the $119.4 mill ionvaluat ion allowance aga ins t i t s DTA -- MF Global ' s seniormanagement informed cred i t ra t ing agencies that t wasabout to report a subs tant ia l loss . As a resu l t , Moody'sdowngraded MF Global ' s debt to j u s t above junk s ta tus .13While Corzine and Steenkamp sought to assure investors tha tMF Global 's f inancia l pos i t ion remained strong, the marketreacted negat ively. MF Global 's stock f e l l by 48 percenton the day t f i l ed the Form 10-Q.

Moreover, the RTM Stra tegy began to unravel . MFGlobal 's counterpar t ies demanded addi t ional margin to cover13 At th i s meeting, Moody's also learned for the f i r s t t ime tha t theCompany's RTM t ransact ions were pure ly propr ie tary , r a ther than par t ofMF Global ' s c l i en t f ac i l i t a t ion business. Moody's Chief Credit Off icerRichard Cantor l a t e r t e s t i f i ed tha t t h i s revela t ion re f lec ted anincreased r i sk appet i te tha t was not accompanied by a para l le lincrease in capi ta l . {CAC 285.}

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the t ransac t ions , which in turn ra ised eyebrows amonginvestment exchanges and government regula tors . The cred i tra t ings agencies also downgraded MF Global s debt yetagain, with Moody s and Fitch lowering MF Global s debtra t ing to junk s ta tus .

MF Global s t ruggled to meet the increased l iqu id i tydemands. On October 28, 2011, the Company overdrafted oneof i t s accounts with J . P. Morgan Chase & Co. MF Globalt ransferred money from another account to compensate, buttha t t ransfer ra ised quest ions about whether MF Global hadimproperly used segregated customer funds from i t s F Moperat ions to cover the overdraf t . 14 On October 29, 2011,MF Global discovered a shor t fa l l in i t s customer fundsaccount , but a t t r ibu ted the shor t fa l l to an accountinger ror . However, by the ea r ly morning hours of October 31,2011, MF Global ins tead informed regula tors tha t theshor t fa l l was accurate .

MF Global sought to se l l off i t s asse t s to obtain thenecessary l iqu id i ty . On October 30, 2011, the Companyreached an agreement to s e l l i t s asse t s to another company,Interac t ive Brokers, for 1 bi l l ion . But tha t deal f e l l14 O Brien, who executed the t r ans fe r a t Corz ine s d i r ec t ion , l a t e rinvoked her Fif th Amendment pr iv i lege against se l f incr iminat ion whenshe was subpoenaed to appear before a congress iona l subcommittee.

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through when the customer funds shor t fa l l carne to l igh t .MF Global declared bankruptcy on October 31. In the end,MF Global ' s FCM operat ions had a 1.6 b i l l ion shor t fa l l incustomer accounts - - 900 mil l ion in domestic accounts and

700 mil l ion in foreign accounts.C. PROCEDUR L HISTORY

On November 3, 2011, Joseph Deangelis brought thef i r s t act ion in th i s case. (Dkt. N o . 1 . The Court has,as necessary, consolidated re la ted act ions under t h i sdocket . By Order dated January 20, 2012{ the Courtappointed The Virginia Retirement System and Her Maj es tyThe Queen In Right Of Alberta as Lead Pla in t i f f s andapproved the se lec t ion of Bernste in Litowitz BergerGrossman LLP and Labaton Sucharow LLP as Co-Lead Counselfor a l l claims brought under the Exchange Act and theSecur i t ies Act. 15 (Dkt. No. 140.) Pla in t i f f s f i l ed the C Con August 20{ 2012. These motions followed. 16

15 Pursuant to an Apr i l 24, 2012 order from the Panel on Mult id i s t r ic tLegis la t ion , s epara te but re la ted ac t ions fo r non- secur i t i e s claims areproceeding under t h i s docket .16 On February 6, 2013, a t the reques t of a l l par t i es , Magis t ra te JudgeJames C. Franc is IV ordered a s t ay of a l l proceedings in t h i s ac t ionwhile the p a r t i e s engaged in volun ta r y mediat ion. (Dkt. No 456.Magis t ra te Judge Francis l i f t e d the s t ay on September 12, 2013. (Dkt.No 538.

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III LEGAL STANDARD

Pla in t i f f s fourteen-count C C i s divided in to f ivese t s of claims. Counts One and Two al lege Exchange Actvio la t ions agains t the Off icer Defendants; Count Onea l leges primary vio la t ions under Section lOeb) and Rule10b-5, and Count Two a l leges cont ro l person violat ionsunder Section 20(a) .

Counts Three, Four, and Five bring Secur i t ies Actclaims re la t ing to the Secondary Notes. Count Threea l leges Section 11(a) violat ions by the IndividualDefendants and the Underwriter Defendants who underwrotethe Secondary Notes. Count Four a l leges violat ions ofSection 12(a) (2) against those same Underwriter Defendants.Count Five al leges Section 15(a) cont ro l person violat ionsby the Officer Defendants.

Counts Six, Seven, and Eight para l le l Counts Three,Four, and Five with respect to the 2016 Notesj these countsal lege Secur i t ies Act violat ions against the IndividualDefendants and the Underwriter Defendants who underwrotethe 2016 Notes. 1 ? Counts Nine, Ten, and Eleven simi lar lyal lege Secur i t ies Act Section 11, Section 12 (a) (2), andSect ion 15 (a) viola t ions with respect to the 2018 Notes.17 Sandler O Nei l l Par tners , L.P . , one of the Senior NotesUnderwriters, i s also a defendant in Counts Six and Seven.

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Final ly , Counts Twelve, Thi r teen , and Fourteen br ingp a r a l l e l cla ims with r espec t to the Senior Notes; theSenior Notes Underwri ters are defendants in Counts Twelve

and Thi r teen .A. PLEADING STANDARDS RULE 12(b) (6), RULE B(a), RULE

9(b) , AND THE PSLRARule 12(b) (6) permi ts dismissa l o f a complaint for

f a i l u r e t o s t a t e a cla im upon which r e l i e f can begranted . Fed. R . C v . P . 12 (b) (6) . To su rv ive a motionto dismiss , a complaint must con ta in s u f f i c i en t fac tua lmatte r , accepted as t rue , to ' s t a t e a cla im to r e l i e f t ha ti s p laus ib le on i t s f ace . ' Ashcrof t v. Iqbal , 556 U. S.66 678 (2009) (quot ing Bel l At l . Corp. v. Twombly, 550U.S. 5 4 4 , 5 7 0 (2007. This s t anda rd i s met when thep l a i n t i f f pleads fac tua l content t ha t al lows the cour t todraw the reasonab le in ference t ha t the defendant i s l i ab lefor the misconduct al leged . Id. A cour t should notd i smiss a complaint fo r f a i l u r e to s t a t e a cla im i f thefac tua l a l l ega t ions s u f f i c i e n t l y ra i se a r i gh t t o r e l i e fabove the specu la t i ve l eve l . Twombly, 550 U. S. a t 555.The t a sk of a cour t in ru l ing on a motion to dismiss i s to

assess the l ega l f e a s i b i l i t y of the compla int not toassay the weight o f the evidence which might be offered insupport thereof . t In re I n i t i a l Pub. Offer ing Sec. Li t ig .

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383 F. Supp. 2d 566, 574 (S.D.N.Y. 2005) (quoting Levi t t v.Bear Stearns Co., Inc. , 340 F.3d 94, 101 (2d Cir. 2003))( in ternal quotat ion marks omitted) , af f ' d sub nom., Tenneyv. Credit Suisse Firs t Boston Corp., Nos. 05-3430-CV, 054759-CV, 05-4760-CV, 2006 W 1423785 (2d Cir . May 19,2006) . A court must accept as t rue a l l well-pleadedfactual a l lega t ions in the complaint , and draw a l lreasonable inferences in the p l a in t i f f ' s favor. SeeChambers, 282 F.3d a t 152.

Federal Rule of Civi l Procedure 8 (a) ( Rule 8 (a) )requi res only a short and pla in sta tement of the claimshowing that the pleader i s en t i t l ed to r e l i e f . Fed. R.Civ. P. 8(a)(2) . Where Rule 8(a) ' s pleading s tandardgoverns, dismissal i s improper as long as the complaintfurnishes adequate notice of the bas is of the p l a in t i f f ' sclaim and re l ie f could be granted under [some] set offac ts cons is tent with the al legat ions. In re GlobalCrossing, Ltd. Sec. Lit ig . , No. 2 Civ. 910, 2005 W2990646, a t *8 (S.D.N.Y. Nov. 7, 2005) (a l tera t ion inor iginal ) (quoting Swierkewicz v. Sorema N.A., 534 U.S.506, 512-14 (2002)) ( interna l quotat ion marks omit ted).

However, p la in t i f f s claiming secur i t i es fraud underthe Exchange Act must also sa t i s fy the heightened pleading

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requirements of Federal Rule of Civil Procedure 9 b) ( Rule9 (b) ) by s ta t [ing] with pa r t i cu l a r i t y the circumstancescons t i tu t ing fraud. Fed. R. Civ. P. 9(b) see ATSI

Inc. v. Shaar Fund Ltd. , 493 F. 3d 87, 99 (2dCir . 2007). Secur i t ies Acts claims that are premised onal legat ions of fraud a lso must sa t i s fy Rule 9 b) , spar t icu la r i ty requirement. Rombach v. Chang, 355 F.3d 164,171 (2d Cir. 2004).

Exchange Act complaints must a lso meet the pleadingrequirements of the Private Secur i t i e s L i t iga t ion ReformAct of 1995 (the PSLRA ). See Kalni t v. Eichler , 264 F.3d131, 138 (2d Cir . 2001). The PSLR requi res that acomplaint specify each sta tement al leged to have beenmisleading, the reason or reasons why the s tatement i smisleading, and, i f an a l lega t ion regarding the s tatementor omission i s made on information and bel i e f , thecomplaint sha l l s ta te with pa r t i cu l a r i t y a l l fac ts on whichtha t be l i e f i s formed. 15 U.S.C. 78u-4(b) (1).B. THE EXCH NGE CT

1 Sect ion 10 and Rule 10b-5In per t inent par t , Sect ion 10(b) declares t unlawful

for any person, di rec t ly or ind i rec t ly , by the use of any

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means of i n t e r s t a t e commerce, the mails , or a nat ionalsecu r i t i e s exchange,

[ t ]o use or employ, in connection with the purchase orsa le of any secur i ty reg i s te red on a nat ionalsecu r i t i e s exchange or any secur i ty not so regis te redany manipulat ive or decept ive device orcontr ivance in contravent ion of such rules andregulat ions as the [Securi t ies and Exchange]Commission may prescr ibe as necessary o r appropriatein the publ ic in te res t or for the protec t ion ofinvestors .

15 U.S.C. 78j (b) .Rule 10b-5, promulgated by the SE to implement

Sect ion 10 (b) , more spec i f i ca l l y del ineates whatcons t i tu te s a manipulat ive or decept ive device orcontr ivance. Press v. Chemical Inv. Servs . Corp. 166F.3d 529, 534 (2d Cir . 1999). Under Rule 1 Ob- 5, t i sunlawful for any person, di rec t ly or ind i rec t ly by the useof any means spec if ied in Sect ion 10(b) :

a) To employ any device, scheme, or ar t i f i ce todefraud, b) To make any untrue s tatement of amater ia l fac t o r to omit to s t a t e a mater ia l fac tnecessary in order to make the sta tements made, in thel igh t of the circumstances under which they were made,not misleading, or (c) To engage in any ac t prac t iceo r course of business which operates or would operateas a fraud or decei t upon any person, in connectionwith the purchase or sa le of any secur i ty .

17 C.F.R. 240.10b-5. Sect ion 10 b) operates as a broadprohib i t ion agains t manipulat ion, whether in the form offa lse sta tements or market manipulat ion. See United Sta tes

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v. Royer I 549 F.3d 886 900 (2d Cir . 2008); ATSI Commc ns493 F.3d a t 99-100.

P l a i n t i f f s in t h i s case a l lege misrepresenta t ions o romissions of ma te r i a l fac t . To s t a t e a c la im formisrepresenta t ions o r omissions a p la in t i f f must a l legetha t the defendant (1) made missta tements or omissions o fmater ia l fac t i (2) with sc ien te r , (3) in connect ion withthe purchase o r sa le of secu r i t i e s , (4) upon which thep l a i n t i f f re l i ed , and (5) tha t the p l a i n t i f f ' s r e l i ance wasthe proximate cause of i t s in jury . ATSI Commc ns, 493F.3d a t 105. 18

a . Missta tements o r Omissions of Mater ia l FactIn order to s a t i s f y Rule 9(b) and PSLRA plead ing

requirements , [a] s e c ur i t i e s f raud complain t based onmissta tements must (1) speci fy the sta tements t ha t thep la in t i f f contends were f raudulent , 2 i de n t i f y thespeaker , (3) s t a t e where and when the s ta tements were made,and (4) expla in why the s ta tements were ' f raudulent . Id .a t 99. An omission i s act ionable only when the[defendant] i s subjec t to a duty to d isc lose the omit ted

fac t s . In re Time Warner Inc. Sec. Li t ig . , 9 F. 3d 259,18 In t he i r va r ious motions to dismiss , no defendant in t h i s ac t ion hasargued t h a t Pl a i n t i f f s have fa i led to adequate ly a l l ege r e l i ance andcausa t ion. Therefore, the Court wi l l not address these elements anyfu r the r .

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267 (2d Cir. 1993). Although Rule 10b-5 imposes no dutyto d isc lose a l l mater ia l , nonpublic information, once apar ty chooses to speak, t has a ' du ty to be both accurate

and complete . ' f Plumbers' Union Local No. 12 Pension Fundv. Swiss Reinsurance Co., 753 F. Supp. 2d 166, 180(S.D.N.Y.2010) (quoting Caiola v. Cit ibank, N.A., N.Y.,295 F.3d 312, 331 (2d Cir . 2002)).

i Mater ia l i tyWhether a misstatement o r omission i s material i s an

inherent ly fac t -spec i f i c f inding tha t i s sa t i s f i ed when ap la in t i f f al leges a sta tement or omission tha t a reasonableinvestor would have considered s ign i f i can t in makinginvestment decis ions . Litwin v. Blackstone Grp. L.P. , 634F.3d 706, 716-17 (2d Cir. 2011) (c i t a t ions and in te rna lquota t ion marks omitted); see also Basic Inc. v. Levinson,485 U.S. 224, 231 (1988). Since mater ia l i ty i s a mixedques t ion of law and fac t , a complaint may not proper ly bedismissed on the ground tha t the al legedmisrepresentat ions o r omissions are not mater ia l unlessthey are so obviously unimportant to a reasonable investortha t reasonable minds could not d i f fe r on the ques t ion ofthe i r importance. EC Local 134 IBEW Jo in t PensionTrust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d

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Cir . 2009) (a l t e ra t ion in o r ig ina l ) ( in ternal quota t ionmarks omitted) .

ii Bespeaks Caution and PSLRA Safe Harbor

Under the "bespeaks caut ion" doc t r ine "[a] forward-looking s ta tement accompanied by su f f i c i en t caut ionarylanguage i s not ac t ionable because no reasonable inves to rcould have found the s ta tement mate r i a l l y misleading.Iowa Pub. Emps.1 Ret. Sys. v . M Global, Ltd ' 620 F.3d137, 141 (2d Cir . 2010 i see a l so Luce v. Edels te in , 802F.2d 49, 56 (2d Cir . 1986) (applying bespeaks caut iondoc t r ine to Sect ion 10(b) cla im). The doc t r ine thus i s acoro l la ry of ' t he wel l -es tab l i shed pr inc ip le tha t asta tement o r omiss ion must be cons ide red in context . 'Iowa Pub. Emps.1 Ret. Sys. , 620 F.3d a t 141 (quoting In reDonald J . Trump Casino Sec. Li t i g . , 7 F. 3d 357, 364 (3dC i r . 1 9 9 3 ) } . Where s u f f i c i e n t caut ionary s ta tements aboutfu ture r i s ks are made, i t cannot be supposed by areasonable inves to r tha t the fu ture i s se t t l ed o runat tended by contingency." Id .

Vague disc losures of general r i sks wi l l not pro tec t

defendants from l i a b i l i t y . Ins tead , the re levantcaut ionary language must be "prominent and spec i f i c I andmust d i rec t l y address exac t ly the r i sk t ha t p l a i n t i f f s

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claim was not di sc losed . Olkey v. Hyper ion 1999 TermTrus t Inc 98 F.3d 2 5 (2d Cir . 1996) . Since most inot a l I I s e c ur i t i e s o f f e r i n g s co n t a i n cau t i o n a ry words a

d i s t r i c t cour t must pay c l o s e a t t e n t i o n to t he ques t ion o fwhether the language provided matches the r i s k addressed.See Halper in v . eBanker USA. com, I n c . , 295 F.3d 352, 359(2d Cir . 2002) . Applying the bespeaks -cau t ion doc t r inerequi res a two-s tep ana lys i s : (I) i den t i fy the a l l eged lyundisc losed r i sk and (2) read the a l l eged ly f raudu len tmate r i a l s inc lud ing the cau t ionary language todetermine i a reasonab le i nves to r could have been misledin to th ink ing t h a t the r i s k t ha t mate r i a l i z ed and r esu l tedin h is lo s s did not ac tu a l l y e x i s t . Id . i accord EdisonFund v. Cogent Inv . S t r a t eg i e s Fund, Ltd . , 551 F. Supp. 2d210, 223 (S.D.N.Y. 2008) ( c i t ing Halper in , 295 F.3d a t359); In re FBR Inc . Sec. Li t i g . , 544 F. Supp. 2d 346, 361(S.D.N.Y. 2008) (same).

The bespeaks-cau t ion doc t r ine app l i e s only to forward-looking s ta tements . ee Iowa Pub. Emps. ' Ret . Sys. , 620F.3d a t 142; P. Sto lz Family P ' sh ip L.P. v . Daum 355 F.3d92, 96-97 (2d Cir . 2004) . The doc t r ine does not applywhere a s ta tement communicate[s] p res en t o r h i s to r i c a lfac t . Iowa Pub. Emps. ' Ret. Sys . , 620 F. 3d a t 144; see

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a l so Rombach, 355 F. 3d a t 173 ( Cautionary words aboutfu ture r i s k cannot i n su la t e from l i a b i l i t y the fa i lure tod i sc lose t ha t the r i sk has t r anspi red . ) . While [a]

s ta tement may conta in some elements t ha t look forward ando ther s t ha t do not , a court should sever the s ta tement ' sforward-looking elements from the non-forward-lookingelements and apply the bespeaks-caut ion doctr ine only tothe former. Iowa Pub. Emps. ' Ret. Sys. , 62 F.3d a t 144.

The PSLRA con ta ins a safe harbor prov i s ion t ha t i sclosely re la ted to the bespeaks caut ion doc t r ine . In re

General Elec. Co. Sec. Li t ig . , 857 F. Supp. 2d 367, 385(S.D.N.Y. 2012 ; see also 15 U.S.C. 77z-2, 78u-5. Underthe PSLRA safe harbor , a defendant i s not l i ab l e i f theforward-looking sta tement i s i de n t i f i e d and accompanied bymeaningful caut ionary language o r i s immater ia l o r thep la in t i f f f a i l s to prove t ha t t was made with ac tua lknowledge t ha t t was fa l se o r misleading. S lay ton v .American Express Co., 6 4 F.3d 758, 766 (2d Cir . 2010 .

To ava i l themselves of sa fe harbor pro tec t ion under themeaningful caut ionary language prong, defendants mustdemonstrate t ha t t he i r caut ionary language was notbo i l e rp la t e and conveyed subs tant ive information. Id . a t772. But the caut ionary language i t s e l f a l so must not be

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misleading; caut ionary language tha t i s misleading inl igh t of his tor ica l fac t cannot be meaningful under thes ta tu te . Id. a t 770.

iii PufferyPuffery i s an opt imis t ic sta tement tha t i s so vague,

broad, and non-specif ic tha t a reasonable investor wouldnot re ly on i t , thereby render ing it immaterial as a mattero f law. In re General Elec. Co., 857 F. Supp. 2d a t 384(c i t ing ECA Local 134, 553 F. 3d a t 206). This ru lepermits companies to operate with a hopeful outlook, ascorporate off i cers are not required to take a gloomy,fearful or defea t i s t view of the fu ture . Rombach, 355F.3d a t 174 ( in ternal quota t ion marks omit ted) . Butsta tements are not puffery where they are

misrepresentat ions of exis t ing facts made even though thespeaker knew tha t the contrary was t rue . Novak v.Kasaks, 216 F.3d 300, 315 (2d Cir. 2000) ( re jec t ing pufferyargument where p la in t i f f s pled fac ts to show tha t s tatement

tha t the inventory s i tua t ion was ' i n good shape' or 'undercont ro l ' was not t rue) ; see a lso In re Bank of Am Corp.Sec. , Der ivat ive , ERISA Li t ig . , 757 F. Supp. 2d 260, 310(S.D.N.Y. 2010) ( [T]here i s a di fference betweenenthus ias t ic sta tements amounting to general puffery and

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opinion-based sta tements tha t are anchored in'mis representa t ions of exis t ing fac t s . ' (quoting Novak,216 F.3d a t 315)) .

iv . Misstatements of OpinionIn addi t ion to misstatements o r omissions of fac t ,

sta tements of opinion or be l i e f are a l so act ionable underSect ion 10 (b) and Rule lOb 5. See City of Omaha, Neb.Civ i l i an Emps.' Ret. Sys. v. C S Corp. , 679 F.3d 64, 67-68(2d Cir. 2012) (adopting s tandard of Fai t v. Regions Fin.Corp, 655 F.3d 105 (2d Cir . 2011), for Sect ion 10(b)claims). To plead a claim for such sta tements , a p la in t i f f

must al lege tha t [the] defendant ' s opinions were bothfa lse and not hones t ly be l ieved a t the t ime they weremade. Fai t , 655 F. 3d a t 113 (c i t ing Virgin ia Banksharesv . Sandberg, 501 U.S. 1083, 1095 (1991)) see also OklahomaFire f ighte r s Pension Ret. Sys. v. Student Loan Corp. ,F. Supp. 2d - - - , 2013 W 3212297, a t *13 (S.D.N.Y. June 25,2013) (dismissing complaint where p la in t i f f s al lege [d] nofac ts whatsoever to support t he i r argument tha t defendantsdid not hones t ly bel ieve t he i r [opinion] when made ). Thep la in t i f f must do more than merely asser t tha t the opinionreached by [the] defendant [] was unreasonable. City ofMonroe Emps.' Ret. Sys. v. Hartford Fin. Servs. Grp. , Inc . ,

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No. 10 Civ. 2835, 2011 W 4357368, a t *13 (S.D.N.Y. Sept.19, 2011) . Ins tead , the complaint must a l l ege provablefac t s t o demonstra te tha t the s tatement of opinion i s bothobjec t ive ly and subjec t ive ly f a l se . Podany v . RobertsonStephens, Inc . , 318 F. Supp. 2d 1 4 6 , 1 5 4 (S.D.N.Y. 2004)( in te rna l quota t ion marks omitted) .

b. Sc ien te rScien ter , a mental s t a t e embracing i n t en t to deceive ,

manipulate , o r defraud , Tel labs , Inc. v . Makor IssuesRights , Ltd . , 551 U.S. 308, 319 (2007) ( in t e rna l quota t ionmarks omi t ted) , i s a requi red element of a cla im underSect ion 10(b) and Rule 10b-5. In order to plead a s t ronginference of sc ien te r , p l a i n t i f f s must a l lege withp a r t i c u l a r i t y e i the r (a) fac t s t o show t ha t the defendanthad both motive and oppor tuni ty to commit fraud o r (b)

fac t s t ha t cons t i tu te s t rong c i r cumstan t i a l evidence ofconscious misbehavior o r r eck lessness . Kalni t , 264 F.3da t 138 ( in te rna l quota t ion marks omit ted) .

A complaint has su f f i c i en t ly al leged motive andoppor tuni ty to commit fraud i f t pleads f ac t s showingtha t the defendant benef i t t ed in some concrete andpersona l way from the purported f raud . Novak, 216 F.3d a t307-08. Motives tha t are common to most corpora te

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off i cers do not cons t i tu te \motive' for thepurpose [] II of es tabl ishing sc ien ter . ECA Local 134, 553F.3d a t 198. Examples of general motives which f a i l tosupport a strong inference of sc ien ter include (1) thedes ire for the corporation to appear prof i t ab le and (2) thedes ire to keep s tock pr ices high to increase off icercompensation. Kalnit , 264 F.3d a t 139. In order to pleadopportunity, a pla in t i f f must \'show tha t the individualdefendants possessed the means and l i ke ly prospect ofachieving concrete benef i t s by the means al leged. ' In reTake-Two Interact ive Sec. Li t ig . , 551 F. Supp. 2d 247, 297(S.D.N.Y. 2008) (quoting Shields v. Cityt rust Bancorp,Inc. , 25 F.3d 1124, 1130 (2d Cir. 1994. The opportunityto commit f raud i s genera l ly assumed where the defendant i sa corporation or corporate off icer . See, ~ In reAstraZeneca Sec. Lit ig . , 559 F. Supp. 2d 453, 468 (S.D.N.Y.2008), a f f d sub nom., Sta te Univs. Ret. Sys. of I l l . V.AstraZeneca PLC, 334 Fed. App'x 404 (2d Cir. 2009 i PensionCornrn of Univ. of Montreal Pension Plan v. Banc of AmSec. , LLC, 446 F. Supp. 2d 163, 181 (S.D.N.Y. 2006)( Regarding the 'opportuni ty ' prong, courts of ten assumetha t corporat ions, corporate off icers , and corporate

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directors would have the opportunity to commit fraud i fthey so des i red . ) .

Where pla in t i f f s f a i l to a l lege sc ien ter throughmotive and opportuni ty, the secur i t i es fraud claim mays t i l l be suf f ic ien t ly s ta ted by a l lega t ions demonstrat ing

strong ci rcumstant ia l evidence of conscious misbehavior orrecklessness, Kalnit , 264 F.3d a t 138-39, but thes t rength of the ci rcumstant ia l a l lega t ions must becorrespondingly grea ter , id. a t 142 ( interna l quota t ionmarks omitted) . A p l a i n t i f f pleading the consciousmisbehavior or recklessness theory of sc ien ter must a l legeconduct which i s highly unreasonable and which representsan extreme depar ture from the s tandards of ordinary care tothe extent tha t the danger was e i ther known to thedefendant or so obvious that the defendant must have beenaware of i t . Id. (quoting Honeyman v. Hoyt (In re CarterWallace, Inc. Sec. Li t ig . ) , 220 F.3d 36, 39 (2d Cir.2000. Specif ica l ly , a complaint suf f ic ien t ly pleadssc ien ter where t al leges defendants had knowledge offac ts or access to information cont radic t ing the i r publics tatements . Id. (quoting Novak, 216 F.3d a t 308).Suff ic ient evidence of recklessness exi s t s i f the fac tua la l lega t ions demonstrate tha t defendants (1) possessed

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knowledge of fac ts o r access to information cont radic t ingthe i r public s tatements , or (2) fa i l ed to review o r checkinformation that they had a duty to monitor o r ignoredobvious s igns of fraud. Novak, 216 F.3d a t 308.

Final ly , in determining whether the pleaded fac tsgive r i s e to a ' s t rong ' inference of scienter , the courtmust take in to account plaus ible opposing in ferences .Tellabs , 551 U.S. a t 323. A strong inference of sc ien ter

must be more than merely plaus ible o r reasonable tmust be cogent and at; l e a s t as compell ing as any opposinginference of nonfraudulent in ten t . Id. a t 314.

2. Sect ion 20(a)Section 20(a) of the Exchange Act provides:Every person who, d i r ec t ly or indi rect ly , cont ro ls anyperson l i ab l e under any provision of th i s chapter orof any ru le or regula t ion thereunder sha l l also bel i ab le jo in t ly and severa l ly with and to the sameextent as such cont ro l led person to any person to whomsuch cont ro l led person i s l i ab l e unless thecont ro l l ing person acted in good fa i th and did notdi rec t ly o r ind i rec t ly induce the ac t or ac tscons t i tu t ing the violat ion or cause of act ion .

15 U.S.C. 78t(a) . Liabi l i ty for Sect ion 20(a) vio la t ionsthus i s der iva t ive of l i a b i l i t y for Section 10 (b)vio la t ions . See Secur i t ies Exchange Comm v. Firs tJersey Sec. , Inc . , 101 F.3d 1450, 1472 (2d Cir. 1996). Inorder to es tab l i sh a prima fac ie case of l i a b i l i t y under

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20 (a), a pla in t i f f must show: 1) a primary vio la t ion bythe cont ro l led person ; 2 control of the primaryvio la tor by the defendant and 3) tha t the control l ingperson was, in some meaningful sense, a culpablepart ic ipant in the cont ro l led person ' s fraud. ATSICommc'ns, 493 F.3d a t 108 ( interna l c i t a t ion omitted) .

To es tab l i sh the second element of control over theprimary violator , a pla in t i f f must show tha t the defendantpossessed the power to di rec t or cause the di rec t ion ofthe management and pol ic ies of a person, whether throughthe ownership of voting secur i t i es , by cont rac t , orotherwise. 17 C.F.R. 240.12b-2i see a lso Fi r s t Jersey,101 F.3d a t 1472-73. To be l i ab le as a control person,the defendant must ac tua l ly possess , in fac t , ra ther thanin theory, the ab i l i ty to di rec t the act ions of thecont ro l led person. In re Global Crossing, 2005 W1881514, a t *12 ( interna l quota t ion marks omitted) seealso Cohen v. Stevanovich, 722 F. Supp. 2d 416, 435(S.D.N.Y. 2010). Moreover, a Section 20(a) defendant mustnot only have actual control over the primary violator , buthave \actual control over the t ransac t ion in quest ion. 'In re Alstom S (Alstom I I I ) , 406 F . Supp. 2d 433, 487(S.D.N.Y. 2005) (guoting In re Global Crossing, 2005 W

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1875445, a t *12) see also Anwar v. Fai r f ie ld GreenwichLtd. , 728 F. Supp. 2d 372, 425 (S.D.N.Y. 2010).

Because fraud i s not an essent i a l element of a Sect ion20(a) claim, Pla in t i f f s need not plead cont ro l inaccordance with the pa r t i cu l a r i t y required under Rule 9(b) .See In re Bris tol Myers Squibb Co. Sec. Li t ig . , 586 F.Supp. 2d 148, 170-71 (S.D.N.Y. 2008 Hall v. TheChildren 's Place Reta i l Stores , Inc . , 580 F. Supp. 2d 212,235 (S.D.N.Y. 2008). Instead, control may be pled inaccordance with the notice pleading s tandard prescr ibed inRule 8 (a) . See In re Alstom S (Alstom IV), 454 F. Supp.2d 187, 210 (S.D.N.Y. 2006). Whether a person i s acont ro l l ing person' i s a fac t - in tens ive inquiry, and

general ly should not be resolved on a motion to dismiss .Katz v. Image Innovations Holdings, Inc . , 542 F. Supp. 2d269, 276 (S.D.N.Y. 2008) ( interna l quota t ion marksomitted) .

However, the heightened pleading s tandards of thePSLR apply with respect to the t h i rd prong of a Sect ion20(a) claim, which requi res pla in t i f f s to a l lege fac tsdemonstrat ing tha t the defendant was a culpablepart ic ipant . See Alstom I I I , 406 F. Supp. 2d a t 491. Inorder to plead culpable par t i c ipa t ion , a pla in t i f f must

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plead with pa r t i cu l a r i t y fac ts giving r i s e to a s t ronginference tha t the defend

mf global decision and order.pdf

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