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



UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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In re BARCLAYS BANK PLC
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SECURITIES LITIGATION
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This Document Relates To:
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ALL ACTIONS

REPLY MEMORANDUM IN FURTHER SUPPORT OF DEFENDANTS’ MOTION TO

DISMISS THE SECOND CONSOLIDATED AMENDED COMPLAINT















David H. Braff ([email protected])
Michael T. Tomaino, Jr. ([email protected]om)
M. David Possick ([email protected])
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, New York 10004
(212) 558-4000 (Telephone)
(212) 558-3588 (Fax)

Attorneys for the Barclays Defendants

Jay B. Kasner ([email protected])
Scott D. Musoff ([email protected])
Gary J. Hacker ([email protected])
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
Four Times Square
New York, New York 10036
(212) 735-3000 (Telephone)
(212) 735-2000 (Fax)

Attorneys for the Underwriter Defendants






January 13, 2014










TABLE OF CONTENTS

Page

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

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

ARGUMENT ...................................................................................................................................2 

I. 

II. 

III. 

THE SCAC SHOULD BE DISMISSED AS BARRED BY THE MANDATE
RULE AND FOR VIOLATING RULE 8 OF THE FEDERAL RULES ............................2 

THIS CASE CANNOT PROCEED UNTIL NEW LEAD PLAINTIFFS ARE
APPOINTED PURSUANT TO THE PSLRA .....................................................................4 

ALL SERIES 5 CLAIMS RELATING TO RISK MANAGEMENT
STATEMENTS, ITEMIZATION AND ALLEGED NON-COMPLIANCE WITH
ACCOUNTING STANDARDS AND SEC REGULATIONS SHOULD BE
DISMISSED ........................................................................................................................5 

A. 

B. 

C. 

The SCAC Does Not Adequately Plead Any Actionable Misstatement
Regarding Barclays’ Risk Management Program ....................................................7 

The SCAC Does Not Adequately Plead Any Actionable Failure to Itemize
Sub-Categories of Barclays’ Mortgage-Related Assets ...........................................8 

The SCAC Does Not Adequately Plead Any Actionable Misstatement
Based on Alleged Non-Compliance with Accounting Standards or SEC
Regulations ..............................................................................................................9 

IV. 

THE NEW NAMED PLAINTIFFS LACK SECTION 12(a)(2) STANDING .................10 

CONCLUSION ..............................................................................................................................10 



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TABLE OF AUTHORITIES








Cases

Page(s)

In re Ambac Financial Group, Inc. Securities Litigation,

693 F. Supp. 2d 241 (S.D.N.Y. 2010) ........................................................................................7

In re Bear Stearns Cos., Inc. Securities, Derivative, and ERISA Litigation,

763 F. Supp. 2d 423 (S.D.N.Y. 2011) ........................................................................................7

In re Citigroup. Inc. Bond Litigation,

723 F. Supp. 2d 568 (S.D.N.Y. 2010) ..................................................................................9, 10

Copantitla v. Fiskardo Estiatorio, Inc.,

788 F. Supp. 2d 253 (S.D.N.Y. 2011) ........................................................................................4

Freidus v. Barclays Bank PLC,

734 F.3d 132 (2d Cir. 2013)............................................................................................. passim

In re General Electric Co. Securities Litigation,

857 F. Supp. 2d 367 (S.D.N.Y. 2012) ........................................................................................9

Hevesi v. Citigroup Inc.,

366 F.3d 70 (2d Cir. 2004)..................................................................................................... 4-5

Illiano v. Mineola Union Free School District,

585 F. Supp. 2d 341 (E.D.N.Y. 2008) .......................................................................................4

In re Initial Public Offering Securities Litigation,

214 F.R.D. 117 (S.D.N.Y. 2002) ...............................................................................................5

Lapin v. Goldman Sachs Group, Inc.,

506 F. Supp. 2d 221 (S.D.N.Y. 2006) ........................................................................................7

In re Lehman Brothers Securities and Erisa Litigation,

799 F. Supp. 2d 258 (S.D.N.Y. 2011) ........................................................................................7

Leutwyler v. Royal Hashemite Court of Jordan,

184 F. Supp. 2d 303 (S.D.N.Y. 2001) ........................................................................................3

In re MBIA, Inc. Securities Litigation,

700 F. Supp. 2d 566 (S.D.N.Y. 2010) ....................................................................................7, 9

In re MF Global Holdings Limited Securities Litigation,

No. 11 Civ. 7866 (VM), 2013 WL 5996426 (S.D.N.Y. Nov. 12, 2013) .................................10

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TABLE OF AUTHORITIES








Cases

(continued)

Page(s)

In re NYSE Specialists Securities Litigation,

240 F.R.D. 128 (S.D.N.Y. 2007) ...............................................................................................5

In re Refco, Inc. Securities Litigation,

503 F. Supp. 2d 611 (S.D.N.Y. 2007) ........................................................................................9

Tin Pan Apple, Inc. v. Miller Brewing Co., Inc.,

737 F. Supp. 826 (S.D.N.Y. 1990).............................................................................................4

In re UBS AG Securities Litigation,

No. 07 Civ. 11225 (RJS), 2012 WL 4471265 (S.D.N.Y. Sept. 28, 2012) .......................4, 5, 10

Vassilatos v. Ceram Tech International Ltd.,

No. 92 Civ. 4574 (PKL), 1993 WL 177780 (S.D.N.Y. May 19, 1993) .....................................4

Zirkin v. Quanta Capital Holdings Ltd.,

No. 07 Civ. 851 (RPP), 2009 WL 185940 (S.D.N.Y. Jan. 23, 2009) ........................................6

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PRELIMINARY STATEMENT

Plaintiffs’ Opposition (“Opp.”) acknowledges that the Second Circuit authorized

the filing of an amended complaint solely “with respect to the Series 5 Offering” and “with a

new Lead Plaintiff.” (Opp. at 17 (quoting Freidus v. Barclays Bank PLC, 734 F.3d 132, 142 (2d

Cir. 2013).) The Opposition nevertheless does not dispute—nor could it—that the SCAC (a) still

asserts claims with respect to the Series 2, 3 and 4 Offerings that are out of the case, (b) still

purports to be brought by the same three original Lead Plaintiffs (Freidus, Mahboubi and the

Thompsons) who no longer have any claims at all, and (c) does not include any new (or viable)

Lead Plaintiffs because no one moved to substitute named plaintiffs Fait and Askelson as Lead

Plaintiffs. The Opposition also concedes that no basis existed to assert Series 5 claims in the

SCAC against Individual Defendants Mr. Barrett and Mr. Kheraj because they were no longer

directors at the time of that Offering, but suggests that this was somehow permissible because

those individuals “never bothered to ask” plaintiffs to dismiss them. (Opp. at 21 n.22.)

Plaintiffs have flouted the Second Circuit’s decision and Mandate and the Federal

Rules. They admit that the SCAC is identical to the Proposed SCAC they submitted to this

Court with their motion for reconsideration in February 2011, long before filing their appeal to

the Second Circuit. (Opp. at 5 n.5.) At that time, plaintiffs stated that the “Proposed SCAC

amends only those deficiencies the Order identified with respect to the Series 5 Offering,” but

still included the Series 2, 3 and 4 allegations and claims “to preserve their rights.” (Dkt. # 58 at

1.) After the Second Circuit’s decision, however, plaintiffs have no rights to preserve with

respect to Series 2, 3 and 4, and the original Lead Plaintiffs have no claims at all, which is why

the Second Circuit permitted the filing of an amended complaint only “with respect to the Series

5 Offering” and “with a new Lead Plaintiff.” Freidus, 734 F.3d at 142. And, although plaintiffs

say that they are not “pursuing claims regarding” Series 2, 3 and 4 (SCAC ¶ 1 n.1), the SCAC





remains an operative pleading that asserts such claims—without any Rule 11 basis—to which

Defendants must respond under the Federal Rules. The Court should dismiss the SCAC and

direct plaintiffs, if they wish to proceed with this action, to move to substitute Fait and Askelson

as new Lead Plaintiffs and file an amended complaint asserting only Series 5 claims.





Further, any such amended pleading should be limited to a Section 11 claim based

on opinion statements in the Series 5 Offering Documents concerning valuations of mortgage-

related assets. Contrary to plaintiffs’ assertion, the Second Circuit did not even discuss, let alone

reinstate, their claims relating to risk management and non-compliance with accounting

standards, which this Court properly dismissed with prejudice. Those claims still fail as a matter

of law, as well as any claim alleging a failure to itemize the categories of Barclays’ mortgage-

related assets. And the Section 12 claim should also be dismissed with prejudice because the

SCAC does not allege that Fait or Askelson purchased Series 5 shares from any defendant.

ARGUMENT

I.

THE SCAC SHOULD BE DISMISSED AS BARRED BY THE MANDATE RULE
AND FOR VIOLATING RULE 8 OF THE FEDERAL RULES.

Plaintiffs’ excuses for including allegations and claims in the SCAC with respect

to the Series 2, 3 and 4 Offerings, in violation of the Second Circuit’s decision and Mandate and

Rule 8 of the Federal Rules (Opp. at 21-25), do not pass muster. First, plaintiffs incorrectly

argue that they “properly filed the virtually identical SAC” that “was reviewed and approved by

the Second Circuit.” (Opp. at 21.) The Second Circuit did not “approve” the filing of a pleading

that reasserted the same Series 2, 3 and 4 claims whose dismissal it affirmed with prejudice.

Instead, it only permitted the filing of an amended complaint “with respect to the Series 5

Offering” and “with a new Lead Plaintiff.” Freidus, 734 F.3d at 141. The SCAC violates these

directives.

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Second, plaintiffs assert that the Series 2, 3 and 4 allegations merely “provide

necessary context and background to plaintiffs’ Series 5 Offering claims.” (Opp. at 25.) That is

a gross mischaracterization. The Series 2, 3 and 4 allegations pervade the SCAC, which even

pleads causes of action based on those dismissed offerings. These allegations and claims are

prejudicial and improper, and violate the Mandate Rule and Rule 8, for several reasons:

? Dismissed Claims. The Counts explicitly seek to hold Defendants liable for statements made

in connection with the Series 2, 3 and 4 Offerings. (See SCAC ¶¶ 238, 248.)

? Definition of the Putative Class. The SCAC proposes a class of “all persons who acquired
preferred securities pursuant or traceable to the materially false and misleading Registration
Statements and Prospectuses” in the Series 2, 3, 4 and 5 Offerings. (SCAC ¶ 1.)
Individual Defendants. The SCAC asserts claims against Individual Defendants Mr. Barrett
and Mr. Kheraj, even though the SCAC’s own allegations make it clear that neither one
signed the registration statement for the Series 5 Offering and both had resigned as Barclays
Directors long before the Series 5 Offering. (See SCAC ¶¶ 36-37.)

?

? Lead Plaintiffs. The original Lead Plaintiffs seek to represent the putative class, even though
they purchased only Series 2, 3 and 4 shares and thus have no claims. (See SCAC ¶¶ 19-21.)

? The Substantive Allegations. The SCAC is littered with almost 100 paragraphs that relate
solely to the dismissed Series 2, 3 and 4 claims. (See, e.g., SCAC ¶¶ 80-131, 156-181.)

Third, plaintiffs argue that “the SAC’s inclusion of these background allegations

is firmly grounded in the law,” but the cases they cite are unavailing. (Opp. at 22.) Indeed, the

case on which they most heavily rely, Leutwyler v. Royal Hashemite Court of Jordan, 184 F.

Supp. 2d 303 (S.D.N.Y. 2001), highlights why plaintiffs must file a new complaint that includes

only the remaining Series 5 claims. In Leutwyler, the court agreed with defendants that the

complaint’s allegations concerning dismissed claims were unnecessary and irrelevant, but denied

a motion to strike them because it was “difficult to see what difference it makes at this stage of

the litigation whether the allegations remain or not.” Id. at 310. The court was careful to point

out that no discovery would be permitted with respect to the dismissed matters, and that it would

entertain a renewed motion to strike or redact those allegations to avoid any prejudicial impact

on the presentation of evidence at trial. Id. The same discovery limitations and striking of

-3-



dismissed allegations is also appropriate here, at the very minimum. But the SCAC also includes

claims without basis, was filed in direct violation of the Second Circuit decision and Mandate,

and muddles together substantive allegations as to dismissed offerings and Series 5 in an

improper attempt to buttress the Series 5 claims (which is particularly prejudicial here because,

as even the SCAC reflects, Barclays’ disclosures increased prior to the Series 5 Offering).1

Finally, plaintiffs complain that filing “yet another amended complaint does

nothing but create unreasonable delay and waste the Court’s and the parties’ time and resources.”

(Opp. at 22.) However, it is plaintiffs’ decision to file an amended complaint violating the

Second Circuit’s Mandate that has caused delay and unnecessary expenditure of resources.

II.

THIS CASE CANNOT PROCEED UNTIL NEW LEAD PLAINTIFFS ARE
APPOINTED PURSUANT TO THE PSLRA.

The original Lead Plaintiffs (Freidus, Mahboubi and the Thompsons) cannot

continue as Lead Plaintiffs under the PSLRA because they have no claims left in this case, and

therefore lack standing to proceed, having only purchased Series 2, 3 and 4 shares. See In re

UBS AG Sec. Litig., 2012 WL 4471265, at *25 (S.D.N.Y. Sept. 28, 2012) (“‘if none of the

named plaintiffs purporting to represent a class establishes the requisite of a case or controversy

with the defendants, none may seek relief on behalf of himself or any other member of the

class’”) (citation omitted) (collecting cases). Plaintiffs correctly note (Opp. at 18) that the

Plaintiffs’ other cases are no more helpful to them. Two cases merely held that allegations with


1
independent relevance to elements of remaining claims should not be stricken. See Illiano v. Mineola
Union Free Sch. Dist., 585 F. Supp. 2d 341, 357 (E.D.N.Y. 2008) (dismissed allegations “are self-
evidently material because they relate to the Plaintiff’s surviving gender-based hostile work environment
claim and her retaliation claims”); Vassilatos v. Ceram Tech Int’l Ltd., 1993 WL 177780, at *3 (S.D.N.Y.
May 19, 1993) (dismissed claim was relevant as predicate acts for RICO claim). Another case did not
even involve any dismissed claims, but rather was a denial of a motion to dismiss and to strike. Tin Pan
Apple, Inc. v. Miller Brewing Co., Inc., 737 F. Supp. 826, 839 (S.D.N.Y. 1990). And in Copantitla v.
Fiskardo Estiatorio, Inc., 788 F. Supp. 2d 253, 308 (S.D.N.Y. 2011), the court denied a motion to strike
that asserted only in “conclusory fashion” that the allegations related solely to a withdrawn claim.

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Second Circuit in Hevesi v. Citigroup Inc. observed that “the PSLRA does not in any way

prohibit the addition of named plaintiffs to aid the lead plaintiff in representing a class” because

“it is inevitable that, in some cases, the lead plaintiff will not have standing to sue on every

claim.” 366 F.3d 70, 83 (2d Cir. 2004) (emphasis added). But that is not helpful here because

none of the original Lead Plaintiffs has standing to sue on any claim left in the case.2

Plaintiffs also argue that the Second Circuit “instructed the Court-appointed Lead

Plaintiffs (and Messrs. Fait and Askelson) to proceed with the claims set forth in the PSAC.”

(Opp. at 17.) Not so. The Second Circuit only permitted an amended complaint “with respect to

the Series 5 Offering” and “with a new Lead Plaintiff.” Freidus, 734 F.3d at 142. The Second

Circuit obviously did not authorize the original Lead Plaintiffs to continue in that capacity when

they have no claims, because it would be contrary to law for them to do so. See In re UBS AG,

2012 WL 4471265, at *25. The formal withdrawal of the original Lead Plaintiffs and

substitution of Fait and Askelson as new Lead Plaintiffs is required. See In re NYSE, 240 F.R.D.

at 134 (it is “lead plaintiffs’ responsibility to propose their own withdrawal and substitution

should it be discovered that they may no longer adequately represent the interests of the” class).

III. ALL SERIES 5 CLAIMS RELATING TO RISK MANAGEMENT STATEMENTS,

ITEMIZATION AND ALLEGED NON-COMPLIANCE WITH ACCOUNTING
STANDARDS AND SEC REGULATIONS SHOULD BE DISMISSED.

The SCAC fails to state a claim with respect to the alleged misrepresentations in

the Series 5 Offering Documents concerning (a) Barclays’ risk management program,

Plaintiffs falsely accuse Defendants of “tak[ing] this four-year-old case back to square one by


2
requiring plaintiffs to . . . engage in a second lead plaintiff appointment process.” (Opp. at 1.) However,
“since all putative class members were given notice of the opportunity to move for appointment as lead
plaintiff by the original motion, there is no need for the Court to re-open the process by ordering a new
notice and motion period.” In re NYSE Specialists Sec. Litig., 240 F.R.D. 128, 143 (S.D.N.Y. 2007). But
Fait and Askelson still must be formally substituted as new Lead Plaintiffs. See id. at 131-35; In re Initial
Pub. Offering Sec. Litig., 214 F.R.D. 117, 120-22 (S.D.N.Y. 2002).

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(b) itemization of mortgage-related assets or (c) alleged non-compliance with international

accounting standards and SEC regulations. (See Opening Br. at 19-24.)3 Plaintiffs’ primary

argument in response—that “the Second Circuit reinstated” plaintiffs’ Series 5 claims “in their

entirety” and “remanded this action so that plaintiffs could proceed with their Securities Act

‘claims’ related to Barclays’ Series 5 Offering” (Opp. at 9 (emphasis in original))—is a baseless

attempt to shield their deficient Series 5 allegations from the pleading requirements of Rule

12(b)(6). The Second Circuit found no error with any aspect of this Court’s Dismissal Order, but

rather held that the “district court erred in denying leave to amend” because, subsequent to the

Dismissal Order, “this Court decided Fait v. Regions Fin. Corp., . . . holding that allegations of

disbelief of subjective opinions could be brought under §§ 11 and 12(a)(2) in certain

circumstances.” Freidus, 734 F.3d at 135. As the Second Circuit explained, “[w]e agree with

the district court that the original complaint contained no such allegations” that “Barclays did not

truly believe its own valuation,” but “[b]ased on our supervening decision in Fait, we conclude

that the district court erred in stating that claims of disbelief of subjective opinions must

necessarily be brought as fraud claims.” Id. at 140-41. As a result, the Second Circuit revived

only the claim challenging the opinion statements in the Series 5 Offering Documents

concerning valuation of mortgage-related assets. Plaintiffs’ allegations concerning itemization,

risk management and non-compliance with accounting standards or SEC regulations should thus


3
The Section 11 claim against Barclays PLC, the holding company parent of Barclays, should be
dismissed because the SCAC fails to allege any of the required facts against it. Plaintiffs assert—without
any support—that the Section 11 claim is proper because “statements by Barclays PLC reflecting the
Company’s improper financial reporting were referenced and incorporated in the Series 5 Offering
Documents.” (Opp. at 21 n.22.) Under Section 11, however, only an issuer, a signer of the registration
statement, a director of the issuer or an underwriter can be sued, and Barclays PLC was none of those.
Zirkin v. Quanta Capital Holdings Ltd., 2009 WL 185940, at *9 (S.D.N.Y. Jan. 23, 2009). All claims
against Messrs. Barrett and Kheraj should also be dismissed, as plaintiffs now concede, because they “did
not participate in the Series 5 Offering [and] are not implicated by plaintiffs’ claims.” (Opp. at 21 n.22.)

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be dismissed in accordance with the undisturbed holdings in the Dismissal Order.4

A.

The SCAC Does Not Adequately Plead Any Actionable Misstatement
Regarding Barclays’ Risk Management Program.

As demonstrated in Defendants’ Opening Brief (at 20-22), the only specific risk

management statements alleged to be misleading are from the Series 3 Offering Documents. In

response, plaintiffs point to one statement in Barclays’ 2007 20-F in which “Barclays extolled,

inter alia, its active management of its credit exposures, and its strategy of ‘manag[ing] the

diversification of its portfolio to avoid unwanted credit risk concentration.’” (Opp. at 13

(quoting SCAC ¶ 192).) This generic statement—especially when coupled with the cautionary

language included in the Series 5 Offering Documents (Opening Br. at 21 & n.15)—is not

actionable for the same reasons the Court dismissed those allegations before.5

Moreover, plaintiffs’ risk management claim separately fails under Second Circuit

Plaintiffs’ cases (Opp. at 13-14) are entirely inapposite. First, the two cases on which plaintiffs

law because “characterization of [the issuer’s] risk-management procedures as effective . . .

4
Indeed, other than a “reference . . . when describing plaintiffs’ claims” (Opp. at 10), the Second
Circuit never discussed claims relating to risk management and alleged non-compliance with accounting
standards, let alone disagreed with this Court’s holding that those claims failed under Rule 12(b)(6).
Similarly, the Second Circuit discussed the appropriate standard to apply to an itemization claim, but did
not address whether plaintiffs adequately pled such a claim. See Freidus, 734 F.3d at 140 n.3.
5
principally rely demonstrate how deficient their risk-management allegations are here. See In re Bear
Stearns Cos., Inc. Sec., Der., & ERISA Litig., 763 F. Supp. 2d 423, 489-90 (S.D.N.Y. 2011) (“statements
about Bear Stearns’ risk management functions and its use of valuation and risk models” actionable
because “Bear Stearns knew that by October of 2007 its entire model review department had
‘evaporated,’” that its “valuation and VaR models were seriously flawed and that the models were never
updated to reflect the housing and subprime mortgage downturn”); In re Lehman Bros. Sec. & ERISA
Litig., 799 F. Supp. 2d 258, 284-85 (S.D.N.Y. 2011) (allegations that “Lehman ‘routinely’ overruled and
disregarded its risk policy limits on the company’s total risk appetite and its balance sheet, concentration,
and single transaction limits . . . permit[ted] the inference that . . . statements to the effect that Lehman
had ‘strong’ and ‘conservative’ risk management were false”). No similar allegations are made here.
Second, plaintiffs’ other cases did not even involve alleged misstatements about risk management. See In
re Ambac Fin. Grp., Inc. Sec. Litig., 693 F. Supp. 2d 241, 270-71 (S.D.N.Y. 2010) (alleging “fail[ure] to
disclose the lowering of Ambac’s underwriting standards”); In re MBIA, Inc. Sec. Litig., 700 F. Supp. 2d
566, 571 (S.D.N.Y. 2010) (alleging “three categories of material misstatements and omissions,” none
about risk management); Lapin v. Goldman Sachs Grp., Inc., 506 F. Supp. 2d 221, 240 (S.D.N.Y. 2006)
(alleging “pervasive conflicts and the effect they had on its research reports and buy recommendations”).

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cannot give rise to liability under §§ 11 & 12(a)(2) unless ‘both objectively false and disbelieved

by the defendant at the time [they were] expressed.’” (Opening Br. at 21-22 (citation omitted).)

Plaintiffs ignore this argument because they implicitly concede that the SCAC never alleges

Defendants believed that the risk management procedures described were not effective.



B.

The SCAC Does Not Adequately Plead Any Actionable Failure to Itemize
Sub-Categories of Barclays’ Mortgage-Related Assets.

Defendants’ Opening Brief (at 22-24) demonstrated that, as the Second Circuit

found, Barclays’ public disclosures prior to the April 2008 Series 5 Offering corrected any

alleged failure adequately to itemize mortgage-related assets, by providing a breakdown of the

sub-categories of mortgage-related assets and exposures, including “its exposures to various

types of CDOs backed by residential MBSs, including high-grade and mezzanine CDOs, as well

as its exposure to monoline insurers.” Freidus, 734 F.3d at 139. In response, plaintiffs contend

that “Barclays did not disclose its: (1) £21.5 billion notional exposure to assets wrapped by

monoline insurers; and (2) more than £10 billion exposure to leveraged loans, at the time of the

Series 5 Offering.” (Opp. at 12-13.) This, however, merely challenges the disclosed dollar

amounts of these exposures—i.e., the subjective valuation opinions on which plaintiffs were

granted leave to replead—rather than claiming that these sub-categories of mortgage-related

assets were not disclosed at all.

In any event, to the extent that plaintiffs are challenging the adequacy of

Barclays’ disclosure of the sub-categories of its mortgage-related assets, that claim fails as a

matter of law. The Series 5 Offering Documents more than satisfied Barclays’ disclosure

requirements by providing granular detail on the various sub-categories of Barclays’ mortgage-

related assets, which far exceeded the disclosures that the Second Circuit held sufficient in RBS

and Hunt. (Opening Br. at 22-24 & n.16.) Plaintiffs do not even try to distinguish either of these

-8-



decisions, and instead cite cases that are entirely unhelpful to their itemization claim.6

C.

The SCAC Does Not Adequately Plead Any Actionable Misstatement Based
on Alleged Non-Compliance with Accounting Standards or SEC Regulations.

The SCAC fails to adequately allege that Barclays did not comply with various

accounting standards and SEC regulations because it fails to specify “in any cognizable respect

whatever how [Barclays’] . . . accounting practices were improper.” (Dismissal Order at 17-18.)

Plaintiffs do not contend that they pled an accounting violation with the requisite specificity, but

instead erroneously assert that “this Court already recognized the intrinsic connection between

the valuation and accounting standards compliance misstatements when it held that ‘Lead

Plaintiffs’ allegations with respect to these accounting and reporting violations are inextricably

intertwined with their . . . arguments regarding Barclays’ valuations of its assets.’”7 (Opp. at

12.)8 The SCAC’s allegations of accounting violations in the Series 5 Offering Documents are

wholly conclusory—even more so than with respect to Series 2, 3 and 4 (compare SCAC ¶¶ 86,

115, 123, with SCAC ¶ 135)—and are thus insufficient to plead any actionable misstatement.

6
In In re General Electric Co. Securities Litigation, 857 F. Supp. 2d 367, 386-87 (S.D.N.Y. 2012),
defendants “had no independent duty to ‘break out’ details concerning its subprime exposure,” but instead
plaintiff “plausibly allege[d] that these disclosures suggest that GE’s loan portfolio was not as high
quality as billed.” Plaintiffs’ other two cases are the same cases that this Court already found to be
“distinguishable because they involve allegations that the defendants’ itemized disclosures contained
misleading statements.” (Dismissal Order at 17 (citing In re Citigroup. Inc. Bond Litig., 723 F. Supp. 2d
568, 589-90 (S.D.N.Y. 2010); In re MBIA, Inc., 700 F. Supp. 2d at 579-80).)
7
In reality, the Dismissal Order (at 17-18) held that, not only did plaintiffs not specify “in any
cognizable respect whatever how [Barclays’] . . . accounting practices were improper,” but plaintiffs’
claim alleging non-compliance with accounting standards or SEC regulations was also deficient because
the underlying valuation of assets was not misstated. That holding, of course, does not mean that the
converse is true, and that plaintiffs need not allege an accounting violation with the requisite specificity if
they sufficiently alleged a misstatement with respect to Barclays’ opinion statements about asset
valuation.
8
cannot be resolved on motion to dismiss” (Opp. at 12 n.13), but they cite cases that do not support that
assertion, and instead involved highly specific allegations of accounting fraud. See, e.g., In re Refco, Inc.
Sec. Litig., 503 F. Supp. 2d 611, 656 (S.D.N.Y. 2007) (allegations that financial “statements failed to
disclose significant related-party transactions and that Refco was a guarantor of those transactions”).

Plaintiffs assert that “allegations of accounting violations raise specialized issues of fact that

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IV.

THE NEW NAMED PLAINTIFFS LACK SECTION 12(a)(2) STANDING.

Plaintiffs dispute that they were required to allege that named plaintiffs

“purchased securities directly from the defendants,” Freidus, 734 F.3d at 141 (citation omitted),

and instead contend that their allegation “that plaintiffs bought their securities in defendants’

public offering” is all that is required to have standing under Section 12(a)(2). (Opp. at 15-16

(emphasis in original).)9 Plaintiffs are wrong, and their concession that they pled only one of the

two requirements necessary to have statutory standing under Section 12 requires dismissal of

their Section 12(a)(2) claim. See In re UBS AG, 2012 WL 4471265, at *25-27 (plaintiff’s failure

to “allege[] that it purchased its shares from any of the Underwriter Defendants[] or that any of

them specifically and successfully solicited its purchase” requires dismissal of Section 12(a)(2)

claim) (quotation omitted); In re CitiGroup, 723 F. Supp. 2d 568 at 585 (same).10

CONCLUSION

For the foregoing reasons and those set forth in Defendants’ Opening Brief, the

Court should dismiss the SCAC in its entirety with prejudice, except that Fait and Askelson (if

they are appointed Lead Plaintiffs) may be given leave to replead a Section 11 claim concerning

Plaintiffs try to hide behind the Second Circuit’s statement that “[w]e believe that Lead Plaintiffs’

opinions about valuations of mortgage-related assets in the Series 5 Offering Documents.

9
proposed amendments addressed the other concerns identified by the district court,” but ignore that the
Second Circuit relied on the fact that “Plaintiff’s counsel represented to the district court at oral argument
that the securities were indeed purchased directly from the defendants.” Freidus, 734 F.3d at 141. The
actual SCAC that was filed after remand does not so allege and therefore fails to substantiate plaintiffs’
counsel’s representation.
10
In re MF Global Holdings Ltd Sec. Litig., 2013 WL 5996426, at *36 (S.D.N.Y. Nov. 12, 2013)
(complaint “does allege, more particularly, that Plaintiffs purchased certain securities directly from
certain underwriters”). And, to the extent that MF Global suggested in dicta that alleging a purchase from
a defendant “is not required at the pleading stage,” that is contrary to settled law in this Circuit (including
Freidus, 734 F.3d at 141). See In re UBS AG, 2012 WL 4471265, at *27 (distinguishing case on which In
re MF Global relies, in that “the complaint in Wachovia contained allegations regarding the transfer of
title to plaintiffs and detail regarding the underwriters’ participation in each offering at issue”).

Plaintiffs rely on only one case, in which plaintiffs did allege purchases directly from a defendant.

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January 13, 2014



Dated: New York, New York




/s/ Jay B. Kasner
Jay B. Kasner ([email protected])
Scott D. Musoff ([email protected])
Gary J. Hacker ([email protected])
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
Four Times Square
New York, New York 10036
(212) 735-3000 (Telephone)
(212) 735-2000 (Fax)

Attorneys for the Underwriter Defendants






Respectfully submitted,

/s/ David H. Braff

David H. Braff ([email protected])
Michael T. Tomaino, Jr. ([email protected])
M. David Possick ([email protected])
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, New York 10004
(212) 558-4000 (Telephone)
(212) 558-3588 (Fax)

Attorneys for the Barclays Defendants



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CERTIFICATE OF SERVICE



I hereby certify that, on January 13, 2014, a true and correct copy of the Reply

Memorandum in Further Support of Defendants’ Motion to Dismiss the Second Consolidated

Amended Complaint was filed via the Court’s CM/ECF system, which will send notification of

such filing to all counsel of record.








___/s/ M. David Possick___


M. David Possick

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