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Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 1 of 18

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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IN RE BARCLAYS BANK PLC SECURITIES
LITIGATION

This Document Relates to: All Actions

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Master File No. 1:09-cv-01989-PAC

ECF Case

Electronically Filed

MEMORANDUM OF LAW IN SUPPORT OF THE UNDERWRITER
DEFENDANTS' MOTION TO DISMISS COUNTS I AND II OF THE

CONSOLIDATED AMENDED COMPLAINT

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP

Jay B. Kasner ([email protected])
Scott D. Musoff ([email protected])
Four Times Square
New York, New York 10036
(212) 735-3000

Attorneys for the Underwriter Defendants

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 2 of 18

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES.......................................................................................................ii

PRELIMINARY STATEMENT .................................................................................................1

STATEMENT OF FACTS..........................................................................................................4

A.

B.

C.

D.

E.

The Offerings ..................................................................................................................4

The Parties.......................................................................................................................5

1.

2.

Plaintiffs ..............................................................................................................5

The Underwriter Defendants ................................................................................6

Barclays Announces Charges Related to "Dislocations in the Credit Markets".................6

Post-Offering Disclosures................................................................................................7

Claims Against the Underwriter Defendants ....................................................................7

ARGUMENT..............................................................................................................................8

COUNTS I AND II OF THE AMENDED COMPLAINT SHOULD BE DISMISSED ...............8

I.

II.

III.

PLAINTIFFS FAIL TO ALLEGE ANY ACTIONABLE MISSTATEMENTS OR
OMISSIONS IN THE OFFERING DOCUMENTS .........................................................9

PLAINTIFFS LACK STANDING TO SUE UNDER SECTION 12(a)(2) .....................10

PLAINTIFFS HAVE FAILED TO SUFFICIENTLY ALLEGE A SECURITIES
ACT CLAIM WITH REGARD TO THE APRIL 2008 OFFERING OF SERIES
5 SECURITIES .............................................................................................................12

CONCLUSION.........................................................................................................................14

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Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 3 of 18

TABLE OF AUTHORITIES

Cases

Page

In re American International Group, Inc. Securities Litigation,

No. 04 Civ. 8141(DAB), 2010 WL 646720 (S.D.N.Y. Feb. 22, 2010)............................13

In re Alcatel Securities Litigation,

382 F. Supp. 2d 513 (S.D.N.Y. 2005) ............................................................................10

Amida Capital Management II, LLC v. Cerberus Capital Management, L.P.,

669 F. Supp. 2d 430 (S.D.N.Y. 2009) ..............................................................................6

Ashcroft v. Iqbal,

129 S. Ct. 1937 (2009).....................................................................................................8

ATSI Communications, Inc. v. Shaar Fund, Ltd.,

493 F.3d 87 (2d Cir. 2007)...............................................................................................4

Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007) ........................................................................................................8

Brown v. Mitchell-Innes & Nash, Inc.,

No. 06 Civ. 7871(PAC), 2009 WL 1108526 (S.D.N.Y. Apr. 24, 2009) ............................8

Caiafa v. Sea Containers Ltd.,

525 F. Supp. 2d 398 (S.D.N.Y. 2007) ............................................................................11

Castorino v. Citibank N.A.,

No. 07 Civ. 10606 (PAC), 2008 WL 5114482 (S.D.N.Y. Dec. 5, 2008)...........................4

DeMaria v. Andersen,

153 F. Supp. 2d 300 (S.D.N.Y. 2001), aff'd, 318 F.3d 170 (2d Cir. 2003) ......................12

In re Deutsche Telekom AG Securities Litigation,

No. 00 CIV 9475 SHS, 2002 WL 244597 (S.D.N.Y. Feb. 20, 2002) ..............................11

First Nationwide Bank v. Gelt Funding Corp.,

27 F.3d 763 (2d Cir. 1994)...............................................................................................4

Gustafson v. Alloyd Co.,

513 U.S. 561 (1995) ......................................................................................................10

In re JP Morgan Chase Securities Litigation,

363 F. Supp. 2d 595 (S.D.N.Y. 2005) ..............................................................................9

ii

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 4 of 18

Kramer v. Time Warner Inc.,

937 F.2d 767 (2d Cir. 1991).............................................................................................4

Ladmen Partners, Inc. v. Globalstar, Inc.,

No. 07 Civ. 0976(LAP), 2008 WL 4449280 (S.D.N.Y. Sept. 30, 2008)..........................10

In re Livent, Inc. Noteholders Securities Litigation,

151 F. Supp. 2d 371 (S.D.N.Y. 2001) .................................................................. 3, 12, 13

Medis Investor Group v. Medis Technologies, Ltd.,

586 F. Supp. 2d 136 (S.D.N.Y. 2008) ..............................................................................4

In re Merrill Lynch & Co. Research Reports Securities Litigation,

289 F. Supp. 2d 416 (S.D.N.Y. 2003) ..............................................................................4

New Jersey Carpenters Health Fund v. DLJ Mortgage Capital, Inc.,

No. 08 Civ. 5653(PAC), Order (S.D.N.Y. Mar. 29, 2010)................................ 2, 8, 10, 11

Panther Partners, Inc. v. Ikanos Communications, Inc.,

538 F. Supp. 2d 662 (S.D.N.Y. 2008) ..........................................................................2, 9

Pinter v. Dahl,

486 U.S. 622 (1988) ......................................................................................................12

Plumbers & Steamfitters Local 773 Pension Fund v. Canadian Imperial

Bank of Commerce,
No. 08 Civ. 8143(WHP), 2010 WL 961596 (S.D.N.Y. Mar. 17, 2010).........................1, 6

Rombach v. Chang,

355 F.3d 164 (2d Cir. 2004).......................................................................................9, 10

In re Sterling Foster & Co., Securities Litigation,

222 F. Supp. 2d 216 (E.D.N.Y. 2002)............................................................................11

Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

551 U.S. 308 (2007) ........................................................................................................4

Statutes and Rules

15 U.S.C. § 77k.....................................................................................................................2, 12

15 U.S.C. §§ 77l....................................................................................................................2, 12

Fed. R. Civ. P. 9(b) .....................................................................................................................9

17 C.F.R. § 230.415(a) (2010).....................................................................................................4

iii

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 5 of 18

Defendants A.G. Edwards & Sons, Inc., Banc of America Securities LLC, Barclays

Capital Securities Limited, BNP Paribas Securities Corp., Citigroup Global Markets Inc.,

Goldman, Sachs & Co., KeyBanc Capital Markets, Merrill Lynch, Pierce, Fenner & Smith

Incorporated, Morgan Stanley & Co., Inc., RBC Dain Rauscher Inc., SunTrust Capital Markets,

UBS Securities LLC, and Wachovia Capital Markets, LLC and Wells Fargo Securities, LLC

(together, n/k/a Wells Fargo Securities, LLC) (collectively, the "Underwriter Defendants")

respectfully submit this memorandum of law in support of their motion to dismiss Counts I and

II of the Consolidated Amended Complaint (the "Amended Complaint" or "Am. Compl.") with

prejudice, pursuant to Rules 8(a), 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure. To

the extent applicable to them, the Underwriter Defendants adopt the arguments set forth in the

Barclays Defendants' Memorandum of Law in support of their motion to dismiss the

Consolidated Amended Complaint (the "Barclays Defendants' Memorandum of Law").

PRELIMINARY STATEMENT

Beginning in the third quarter of 2007, the world financial markets suffered an

unprecedented meltdown, including a collapse of the credit markets. As a result of this crisis,

banks around the world announced substantial write-downs of mortgage-related assets. See

Plumbers & Steamfitters Local 773 Pension Fund v. Canadian Imperial Bank of Commerce, No.

08 Civ. 8143 (WHP), 2010 WL 961596, at *11 (S.D.N.Y. Mar. 17, 2010) (dismissing putative

shareholder complaint that "describe[d] an unprecedented paralysis of the credit market and a

global recession"). It was in this context that, on November 15, 2007, Barclays Bank PLC

("Barclays") announced £1.3 billion in write-downs related to its mortgage and credit-related

assets. Additional write-downs followed.

On March 4, 2009, the first of five putative class action complaints was filed against

Barclays, certain of its officers and directors, and certain of the Underwriter Defendants alleging

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 6 of 18

violations of Sections 11, 12, and 15 of the Securities Act of 1933 (the "Securities Act"), 15

U.S.C. §§ 77k, 77l, and 77o. Using "craftily drafted" hindsight allegations implying "that what

only became clear due to subsequent events was somehow known . . . far earlier" Panther

Partners, Inc. v. Ikanos Commc'ns, Inc., 538 F. Supp. 2d 662, 669 (S.D.N.Y. 2008) (Crotty, J.),

Plaintiffs alleged that the registration statements and prospectuses relating to four offerings by

Barclays of preferred stock between April 2006 and April 2008 underwritten by some or all of

the Underwriter Defendants were "false and misleading." Plaintiffs further alleged that the

offering materials incorporated public filings that failed to present accurate disclosures regarding

Barclays' exposure to mortgage and credit-related assets.

On its face, the Amended Complaint is fatally defective and Counts I and II against the

Underwriter Defendants should be dismissed for the following reasons. First, for the reasons set

forth in the Barclays Defendants' Memorandum of Law, Plaintiffs do not allege any actionable

misstatements or omissions in the offering documents and their Securities Act claims, therefore,

fail as a matter of law. (See Point I infra.)

Second, Plaintiffs lack standing to assert any claims pursuant to Section 12(a)(2) of the

Securities Act. To establish standing under Section 12(a)(2), a plaintiff must allege facts

sufficient to demonstrate that it purchased securities (i) in the public offerings at issue rather than

in any secondary market and (ii) from the defendants actually being sued. See New Jersey

Carpenters Health Fund v. DLJ Mortgage Capital, Inc., No 08 Civ. 5653 (PAC), Order at 6-7

(S.D.N.Y. Mar. 29, 2010) (Crotty, J.) (Perrin Decl. Ex. W).1 Conspicuously absent from the

Amended Complaint, however, are any allegations that Plaintiffs actually purchased the

Citations to "Perrin Decl. Ex. __" are to documents attached as exhibits to the Declaration

1
of Christopher A. Perrin, dated April 19, 2010, filed in support of the Barclays Defendants'
Motion to Dismiss the Consolidated Amended Complaint.

2

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 7 of 18

securities in the public offerings at issue as opposed to the secondary market, or that Plaintiffs

purchased the securities from any of the Underwriter Defendants. As a result, the Section

12(a)(2) claims should be dismissed. (See Point II infra.)

Finally, Plaintiffs fail to allege sufficiently any Securities Act claims with regard to the

April 8, 2008 offering of Barclays 8.125% Non-Cumulative Callable Dollar Preference Shares,

Series 5. Plaintiff Martin Ettin, the only named Plaintiff alleged to have purchased the Series 5

securities, purportedly purchased them after the date on which Plaintiffs allege Barclays "[made]

adequate disclosures of its capital credit market exposures." (Am. Compl. ¶ 184.) A plaintiff,

however, may not recover under Sections 11 or 12(a)(2) where, as here, he knew of the alleged

"untruth or omission" at the time he purchased the subject securities. See In re Livent, Inc.

Noteholders Sec. Litig., 151 F. Supp. 2d 371, 441 (S.D.N.Y. 2001) (citations omitted). (See

Point III infra.)

For these, and additional reasons outlined below and in the Barclays Defendants'

Memorandum of Law, Counts I and II of the Amended Complaint should be dismissed with

prejudice against the Underwriter Defendants.

3

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 8 of 18

A.

The Offerings

STATEMENT OF FACTS2

Barclays, a worldwide financial institution headquartered in London, filed shelf

registration statements3 with the Securities and Exchange Commission on September 14, 2005

(the "2005 Registration Statement") and August 31, 2007 (the "2007 Registration Statement")

(collectively, the "Registration Statements"). (Am. Compl. ¶ 1.) Between April 2006 and April

2008, Barclays issued preferred securities in the form of American Depository Shares in four

separate offerings (collectively, the "Offerings") and filed prospectus supplements to the

Registration Statements (collectively, the "Offerings Documents"). (Id.) The Offerings were as

follows:

?

?

6.625% Dollar-Denominated Non-Cumulative Preference Shares, Series 2 (the
"Series 2 Securities"), offered in April 2006;

7.1% Dollar-Denominated Non-Cumulative Callable Preference Shares, Series 3
(the "Series 3 Securities"), offered in September 2007;

For purposes of a motion to dismiss, the Court may consider "'any written instrument

2
attached to the complaint, statements or documents incorporated into the complaint by
reference . . . and documents possessed by or known to the plaintiff[s] and upon which [they]
relied in bringing the suit.'" Medis Investor Group v. Medis Techs., Ltd., 586 F. Supp. 2d 136,
138 (S.D.N.Y. 2008) (Crotty, J.) (quoting ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87,
98 (2d Cir. 2007)); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007) ("[C]ourts must consider . . . sources courts ordinarily examine when ruling on Rule
12(b)(6) motions . . . , in particular, documents incorporated into the complaint by reference, and
matters of which a court may take judicial notice."). In doing so, however, "the [C]ourt is 'not
obliged to accept the allegations of the complaint as to how to construe such documents. . . .'"
Castorino v. Citibank N.A., No. 07 Civ. 10606 (PAC), 2008 WL 5114482, at *3 n.3 (S.D.N.Y.
Dec. 5, 2008) (Crotty, J.) (citation omitted). In addition, the Court may consider market
phenomena, such as the unprecedented liquidity crisis that began in 2007. See, e.g., First
Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 770 (2d Cir. 1994) (real estate market
downturn); Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991) (junk bond market
collapse); In re Merrill Lynch & Co. Research Reports Sec. Litig., 289 F. Supp. 2d 416, 421 n.6
(S.D.N.Y. 2003) (judicial notice of "the internet bubble and its subsequent crash").

A shelf registration statement allows securities to "be registered for an offering to be

3
made on a continuous or delayed basis in the future." 17 C.F.R. § 230.415(a) (2010).

4

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 9 of 18

?

?

7.750% Non-Cumulative Callable Dollar Preference Shares, Series 4 (the "Series
4 Securities"), offered in December 2007; and

8.125% Non-Cumulative Callable Dollar Preference Shares, Series 5 (the "Series
5 Securities"), offered in April 2008 (the "April 2008 Offering"). (Id.)

B.

The Parties

1.

Plaintiffs

Lead Plaintiff Marshall Freidus allegedly acquired Series 2 Securities "issued pursuant or

traceable to the . . . 2005 Registration Statement and Prospectuses as set forth in the Certification

filed with the Court on May 4, 2009." (Am. Compl. ¶ 18.) As of the date of his Certification,

Freidus had not sold any of the securities. (Perrin Decl. Ex. B.)

Lead Plaintiff Dora L. Mahboubi allegedly acquired Series 3 Securities "issued pursuant

or traceable to the . . . 2007 Registration Statement and Prospectuses as set forth in the

Certification filed with the Court on May 4, 2009." (Am. Compl. ¶ 19.) As of the date of her

Certification, Mahboubi had not sold any of the securities. (Perrin Decl. Ex. C.)

Lead Plaintiffs Stewart and Sharon Thompson, Trustees for the S.O. Thompson Rev.

Trust and the S.G. Thompson Rev. Trust, allegedly acquired Series 4 Securities "issued pursuant

or traceable to the . . . 2007 Registration Statement and Prospectuses as set forth in the

Certification filed with the Court on May 4, 2009." (Am. Compl. ¶ 20.) As of the date of their

Certification, Stewart and Sharon Thompson had not sold any of the securities. (Perrin Decl. Ex.

D.)

Additional named Plaintiff Martin Ettin allegedly acquired Series 5 Securities "issued

pursuant or traceable to the . . . 2007 Registration Statement and Prospectuses as set forth in the

Certification filed with the Court on May 6, 2009." (Am. Compl. ¶ 21.) According to his

Certification, on September 19, 2008, approximately five months after the April 2008 Offering,

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Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 10 of 18

Ettin acquired 6200 shares of the Series 5 Securities at a price of $20.0612 per share. (Perrin

Decl. Ex. E.) Approximately two weeks later, on October 7, 2008, Ettin sold all of his shares.

(Id.)

2.

The Underwriter Defendants

The Underwriter Defendants are financial services firms that acted as underwriters for

certain of the Offerings. (Am. Compl. ¶¶ 43-56.)

C.

Barclays Announces Charges Related to "Dislocations in the Credit Markets"

By late-summer 2007, the credit markets had suffered an unparalleled liquidity seizure.

See, e.g., Amida Capital Mgmt. II, LLC v. Cerberus Capital Mgmt., L.P., 669 F. Supp. 2d 430,

433 (S.D.N.Y. 2009) ("July 2007 marked the beginning of what was then called the 'credit

crunch,' the first phase of the financial crisis that culminated in the fall of 2008."); see also

Plumbers & Steamfitters Local 773 Pension Fund, 2010 WL 961596, at *11.

It was in this context that on November 15, 2007, Barclays announced £1.3 billion in

write-downs related to its "credit, mortgage and leveraged finance related" assets. (Am. Compl.

¶ 115; Perrin Decl. Ex. K (11/15/07 Form 6-K) at 1.) Thereafter, on February 19, 2008, Barclays

announced its year-end results for 2007. In doing so, Barclays disclosed, among other things, net

losses of £1.635 billion "due to dislocations in the credit markets." (Am. Compl. ¶ 125; Perrin

Decl. Ex. V (2/19/08 Form 6-K) at 46.) In addition, in its 2007 Annual Report on Form 20-F,

Barclays disclosed that "[i]mpairment charges and other credit provisions rose 30% to £2,795

million" and that "[i]mpairment charges relating to US sub-prime mortgages and other credit

market exposures were £782 million." (Am. Compl. ¶ 129; Perrin Decl. Ex. I (2007 Form 20-F)

at 4.)

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Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 11 of 18

D.

Post-Offering Disclosures

Following the Offerings (the last of which occurred in April 2008), Barclays made

additional disclosures regarding its mortgage and credit-related assets. For example, on May 15,

2008, Barclays announced that it had taken £1.7 billion in write-downs on mortgage and other

investments. (Am. Compl. ¶¶ 186-87.) In addition, the May 15, 2008 disclosure provided a

detailed breakdown of Barclay's credit market exposures as of March 31, 2008. (Id.)

Thereafter, on August 7, 2008, Barclays issued its 2008 Interim Results as of June 30,

2008, in which it disclosed that its first-half net income declined 34% to £1.72 billion and that

such reduction was due, in part, to a write-down of £2.8 billion of credit-related assets. (Am.

Compl. ¶ 190.) According to Plaintiffs, the Interim Results contained "adequate disclosures of

[Barclays'] capital credit market exposures." (Id. ¶ 184.)4

E.

Claims Against the Underwriter Defendants

Plaintiffs purport to assert two claims against the Underwriter Defendants. Count I

alleges that the Underwriter Defendants violated Section 11 of the Securities Act and Count II

alleges that the Underwriter Defendants violated Section 12(a)(2) of the Securities Act. The

Amended Complaint generally alleges, in formulaic fashion, that: (i) the Offerings took place; (ii)

certain financial institutions served as underwriters for particular Offerings; (iii) the Offering

Documents were "false and misleading, contained untrue statements of material facts, omitted to

state other facts necessary to make the statements made not misleading, and omitted to state

material facts required to be stated therein;" (iv) the Underwriter Defendants did not make "a

reasonable investigation or posses[] reasonable grounds for the belief that the statements

4
Despite the various losses and write-downs related to its mortgage and credit-related
assets, Barclays was never required to restate any financial statements or issue any corrective
disclosures.

7

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 12 of 18

contained in the [Offering Documents] were true and without omission of any material facts, and

were not misleading;" and, as a result, (v) the Underwriter Defendants are liable for violations of

Sections 11 and 12(a)(2) of the Securities Act. (Am. Compl. ¶¶ 213, 216-19, 225-27.) Both the

Section 11 and Section 12(a)(2) claims are based on the same alleged misstatements and

omissions. Plaintiffs specifically allege that, "[a]s the credit markets peaked and then began their

rapid decline, Barclays' credit market assets also began declining in value, and the risks of

further decline increased exponentially. Yet there was [allegedly] no disclosure to investors" and

the Offering Documents allegedly "contained virtually no information concerning the financial

status of [Barclays] or the risks it faced." (Am. Compl. ¶¶ 6-7.)

ARGUMENT

COUNTS I AND II OF THE AMENDED
COMPLAINT SHOULD BE DISMISSED

In evaluating a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil

Procedure, a court must accept well-pleaded factual allegations as true. See Ashcroft v. Iqbal,

129 S. Ct. 1937, 1949 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). "'A

pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause

of action will not do.'" New Jersey Carpenters Health Fund v. DLJ Mortgage Capital, Inc., No

08 Civ. 5653 (PAC), Order at 5 (S.D.N.Y. Mar. 29, 2010) (Crotty, J.) (quoting Iqbal, 129 S. Ct.

at 1949). "To survive a motion to dismiss, courts require 'enough facts to state a claim to relief

that is plausible on its face.'" Brown v. Mitchell-Innes & Nash, Inc., No. 06 Civ. 7871 (PAC),

2009 WL 1108526, at *3 (S.D.N.Y. Apr. 24, 2009) (Crotty, J.) (quoting Twombly, 550 U.S. at

570). "[C]raftily drafted" allegations "imply[ing] that what only became clear due to subsequent

events was somehow known . . . far earlier," such as those asserted here, do not meet this

8

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 13 of 18

pleading standard. Partners, Inc. v. Ikanos Commc'ns, Inc., 538 F. Supp. 2d 662, 669 (S.D.N.Y.

2008) (Crotty, J.).

Moreover, where Section 11 and Section 12(a)(2) claims "sound in fraud," they are

subject to the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil

Procedure. Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004). Rule 9(b) requires that "in

alleging fraud or mistake, a party must state with particularity the circumstances constituting

fraud or mistake." Fed. R. Civ. P. 9(b). The applicable test for determining whether a Securities

Act claim "sounds in fraud" is whether the complaint includes "wording and imputations . . .

classically associated with fraud," such as allegations that a registration statement or prospectus

"contained 'untrue statements of material facts'" or that "'materially false and misleading written

statements' were issued." Rombach, 355 F.3d at 172 (emphasis in original); see also In re JP

Morgan Chase Sec. Litig., 363 F. Supp. 2d 595, 635 (S.D.N.Y. 2005).

I.

PLAINTIFFS FAIL TO ALLEGE ANY ACTIONABLE MISSTATEMENTS OR
OMISSIONS IN THE OFFERING DOCUMENTS

For the reasons set forth in the Barclays Defendants' Memorandum of Law, Plaintiffs'

Securities Act claims should be dismissed because the Amended Complaint does not sufficiently

allege that the Offering Documents contain any actionable misstatements or omissions.5 (See

Barclays Defendants' Memorandum of Law at Point I.) The Offering Documents adequately

disclosed Barclays' mortgage and credit-related assets and Defendants did not, as Plaintiffs seem

to allege, have a duty to disaggregate the separate categories of these assets. (Id. at Point I.B.)

Moreover, many of Plaintiffs' allegations are nothing more than challenges to the subjective

opinions of Defendants (e.g., that Barclays carried its mortgage and credit-related assets on its

To avoid unnecessary duplication, the Underwriter Defendants do not repeat in full the

5
arguments set forth in the Barclays Defendants' Memorandum of Law.

9

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 14 of 18

financial statements at inflated values and waited too long to write down those assets). (Id. at

Point I.C.) As this Court recently held, "subjective opinions – as opposed to statements of fact –

are only actionable under the Securities Act if a complaint alleges that the speaker did not truly

have the opinion at the time it was made public." DLJ Mortgage Capital, Order at 12. The

Amended Complaint, however, contains no such allegations. (See Barclays Defendants'

Memorandum of Law at Point I.C.)6

II.

PLAINTIFFS LACK STANDING TO SUE UNDER SECTION 12(a)(2)

As this Court recently held in DLJ Mortgage Capital, to have standing to sue pursuant to

Section 12(a)(2), a plaintiff must allege facts sufficient to demonstrate that it purchased securities

in the public offerings at issue, and not in any secondary market. See DLJ Mortgage Capital,

Order at 6-7; see also Gustafson v. Alloyd Co., 513 U.S. 561, 578 (1995); In re Alcatel Sec. Litig.,

382 F. Supp. 2d 513, 530 n.8 (S.D.N.Y. 2005) ("Only those [p]laintiffs who purchased . . . shares

pursuant to (i.e., in) the IPO have standing to bring [a] section 12(a)(2) claim.").

In support of their Section 12(a)(2) claims, Plaintiffs offer nothing more than boilerplate

assertions that they "acquired the [Barclays] Securities issued pursuant or traceable to the

[Offering Documents]." (Am. Compl. ¶¶ 18-21.) Conspicuously absent from the Amended

Complaint is any allegation by Plaintiffs that they purchased the Barclays securities in the

Offerings at issue rather than in the secondary market. Although Plaintiffs have submitted

6
In any event, allegations that Defendants knew in earlier periods that its credit market
assets were being carried at inflated values – although entirely absent here – would necessarily
sound in fraud, thereby requiring Plaintiffs to satisfy the stringent pleading requirements of Rule
9(b). See Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004); see also Ladmen Partners, Inc.
v. Globalstar , Inc., No. 07 Civ. 0976 (LAP), 2008 WL 4449280, at *12 (S.D.N.Y. Sept. 30,
2008) (allegations that defendant had contrary knowledge when "reviewing and/or disseminating
[allegedly] misleading statements and information" "sound in fraud"). Because Plaintiffs have
failed to satisfy the pleading standards articulated by the Supreme Court in Iqbal and Twombly
(see Barclays Defendants' Memorandum of Law at Point I.), they plainly cannot satisfy the
heightened standards of Rule 9(b).

10

Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 15 of 18

Certifications purportedly detailing their transactions in the Barclays securities at issue, those

Certifications do not specify whether the securities were actually purchased in the subject

Offerings. Such conclusory and vague pleading is wholly insufficient to establish standing to

assert a claim under Section 12(a)(2). See DLJ Mortgage Capital, Order at 6-7 (dismissing

Section 12 claim where complaint alleged "only that Plaintiff purchased [the subject securities]

'pursuant and traceable to' the Offering Documents"); Caiafa v. Sea Containers Ltd., 525 F. Supp.

2d 398, 407 (S.D.N.Y. 2007) (dismissing Section 12(a)(2) claim where complaint did not allege

that plaintiffs purchased shares in a public offering).

Because the Amended Complaint does not "allege that [Plaintiffs] purchased the

securities in a public offering, as opposed to in the aftermarket," the fact that "[s]ome of the

purchase dates listed in [Lead Plaintiffs' Certifications] are close enough in time to suggest that

[they] could have made their purchases in the [Offerings]" is insufficient to save their Section

12(a)(2) claims. In re Sterling Foster & Co., Sec. Litig., 222 F. Supp. 2d 216, 245 (E.D.N.Y.

2002). Moreover, the Certification submitted by Plaintiff Ettin makes clear that he did not

purchase the Series 5 Securities in the April 2008 Offering. According to his Certification, Ettin

first purchased the Series 5 Securities on September 19, 2008, more than five months after the

April 2008 Offering. (Perrin Decl. Ex. E.) In addition, while the Series 5 Securities were

originally offered at $25.00 per share, Ettin purportedly purchased the securities for $20.0612 per

share. (Id.)

Finally, Plaintiffs' Section 12(a)(2) claims should be dismissed for the additional reason

that Plaintiffs have failed to allege, as they must, that they directly purchased the securities at

issue from a particular Underwriter Defendant or as a result of a particular Underwriter

Defendant's solicitation. See In re Deutsche Telekom AG Sec. Litig., No. 00 CIV 9475 SHS,

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Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 16 of 18

2002 WL 244597, at *3 (S.D.N.Y. Feb. 20, 2002) (in order to qualify as a "seller" for Section

12(a)(2) liability, a plaintiff must allege a defendant "(1) passed title of the security to the

plaintiff or (2) successfully solicited the purchase motivated at least in part by [its] own financial

interest") (citing Pinter v. Dahl, 486 U.S. 622, 642 (1988)); see also DeMaria v. Andersen, 153 F.

Supp. 2d 300, 307 (S.D.N.Y. 2001) (dismissing Section 12 claim against underwriter defendants

because "the amended complaint [did] not aver that any defendant was the immediate seller to

any named plaintiffs," or that any defendant "actively solicited any named plaintiff in connection

with the sale" of the securities at issue), aff'd, 318 F.3d 170 (2d Cir. 2003).

III.

PLAINTIFFS HAVE FAILED TO SUFFICIENTLY ALLEGE A SECURITIES
ACT CLAIM WITH REGARD TO THE APRIL 2008 OFFERING OF SERIES
5 SECURITIES

A plaintiff "may not recover under §§ 11 or 12(a)(2) if [he] knew of the alleged untruth

or omission at the time of purchase." In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp. 2d

371, 441 (S.D.N.Y. 2001) (citing 15 U.S.C. §§ 77k(a) & 77l(a)(2)). "Knowledge that a

misstatement or omission exists is sufficient to defeat a § 11 or 12(a)(2) claim; defendants need

not demonstrate plaintiffs' actual knowledge of the truth." Id. (citation omitted).

Here, Plaintiff Ettin is the only named Plaintiff alleged to have purchased the Series 5

Securities issued in the April 2008 Offering. (Am. Compl. ¶ 21.) As previously stated,

according to his Certification, Ettin allegedly purchased the Series 5 Securities on September 19,

2008. (Perrin Decl. Ex. E.) Nevertheless, Plaintiffs themselves allege that Barclays made

"adequate disclosures of its capital credit market exposures" in its 2008 Interim Results, as of

June 30, 2008, which were issued on August 7, 2008, more than one month prior to Ettin's

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Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 17 of 18

purchase of the Series 5 Securities.7 (Am. Compl. ¶ 184.) Thus, at the time Ettin purchased the

Series 5 Securities, he had knowledge of any alleged "untruths or omissions" in the Offering

Documents. Plaintiffs' Securities Act claims regarding the April 2008 Offering of Series 5

Securities should, therefore, be dismissed. See Livent, 151 F. Supp. 2d at 441 (dismissing

Section 11 and Section 12(a)(2) claims because plaintiffs were aware, prior to purchasing notes,

that the registration statement contained misstatements); see also, e.g., In re Am. Int'l Group, Inc.

Sec. Litig., No. 04 Civ. 8141 (DAB), 2010 WL 646720, at *8 (S.D.N.Y. Feb. 22, 2010) (holding

that plaintiffs did not have standing to bring a Section 11 claim where they purchased securities

despite "[knowing] that some or many of the statements contained in the Registration Statement

were false when they relied on that Statement in purchasing the [subject securities]").8

7
While Plaintiffs also allege that "certain vital disclosures were not made until the annual
report as of December 31, 2008" (Am. Compl. ¶ 184), tellingly, the Amended Complaint does
not provide a description of any such "vital disclosures."

The Underwriter Defendants also specifically join in the Barclays Defendants' argument

8
that Plaintiffs' claims with regard to the Series 2, 3, and 4 Securities are time-barred. (See
Barclays Defendants' Memorandum of Law at Point III.)

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Case 1:09-cv-01989-PAC Document 45 Filed 04/19/2010 Page 18 of 18

CONCLUSION

For the foregoing reasons, as well as those set forth in the Barclays Defendants'

Memorandum of Law, the Underwriter Defendants respectfully request that Counts I and II of

the Amended Complaint be dismissed in their entirety with prejudice.

Dated: New York, New York

April 19, 2010

Respectfully submitted,

/s/ Jay B. Kasner
Jay B. Kasner
([email protected])
Scott D. Musoff
([email protected])
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP

Four Times Square
New York, New York 10036
(212) 735-3000

Attorneys for the Underwriter Defendants

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