By Ben Suter
*Statements are not actionable as securities fraud where they either constitute puffery, are not materially misleading when viewed in context, are too vague or are general statements on which investors are not likely to rely. **A securities fraud plaintiff does not sufficiently plead scienter as to the omission of a possible risk where the plaintiff fails to allege that the defendant perceived the risk as a serious possibility at the time it made the omission.
Retirement Board of the Policemen’s Annuity and Benefit Fund of Chicago vs. FXCM Inc., No. 15-CV-3599 (KMW), 2018 U.S. Dist. LEXIS 136385 (S.D. N.Y., 8/10/18).
Currency Decoupling Causes Consternation
Retirement Board of the Policemen’s Annuity and Benefit Fund of Chicago (“Plaintiff”) was an institutional investor of brokerage firm FXCM, which allowed its customers to bet on changes in prices for certain currency pairs, such as the Euro against the Swiss Franc (“EUR/CHF”). In January 2015, FXCM’s customers collectively held a $2.2 billion position in the EUR/CHF pair, which was pegged at a ra2te of 1.20 Swiss Francs to 1 Euro. On January 15, 2015, the Swiss National Bank announced that it would de-peg the Swiss Franc from the Euro. As a result, the price of the Swiss Franc soared. FXCM saw losses of $276 million and subsequently entered into a punitive financing agreement, both of which caused FXCM’s stock to plummet. Plaintiff filed a putative securities class action against FXCM and its CEO (collectively, “Defendants”), alleging that they misled investors about the risks associated with FXCM’s business, in violation of the Securities Exchange Act and SEC Rule 10b-5. The Court granted Defendants’ motion to dismiss Plaintiff’s Amended Complaint. Defendants now move to dismiss Plaintiff’s Second Amended Complaint on the grounds that Plaintiff did not adequately allege material misstatements, scienter, or loss causation.
A Doomed Suit
The Court grants the second motion to dismiss. To begin with, all four of the purportedly false or misleading statements alleged by Plaintiff are not actionable either because they: (i) constituted “puffery”; (ii) were not materially misleading when viewed in context; (iii) were too vague; or (iv) were general statements that investors are not likely to rely on. As to scienter, the Court finds that Plaintiff did not attempt to directly argue that Defendants had motive to commit fraud. Furthermore, all of the allegations, when taken together, do not create a strong inference of scienter. First, although Defendants were allegedly aware of the possible consequences of the EUR/CHF being de-pegged, Plaintiff failed to establish that Defendants perceived the risk as a serious possibility at the time. Second, Defendant fully disclosed that it was exposed to risk and therefore did not knowingly mislead investors. Third, the fact that Defendants previously experienced losses due to similar but separate circumstances weighs against a finding of scienter, because Defendant survived that period of volatility. Fourth, the fact that Defendants did not act consistently with its competitors with respect to the EUR/CHF pair shows nothing more than a different business judgment. Fifth, the Court finds that Plaintiff’s allegations that Defendant attempted to “cover up” information regarding the EUR/CHF pair are inaccurate and, in any event, insufficient to establish scienter. Because the Court holds that material misstatements and scienter have not been established, it does not address the issue of loss causation.
(SOLA Ref. No. 2018-37-04)
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