The opinion of the court was delivered by: Jed S. Rakoff, U.S.D.J.
Plaintiff Jerry N. Pollio brings this securities class action on behalf of himself and other individuals who purchased stock in defendant MF Global Ltd. ("MF Global" or "the Company") between March 17, 2008 and June 20, 2008 ("the Class Period"). In his Complaint for Violation of the Securities Laws ("the "Complaint"), plaintiff alleges that MF Global, together with its individual officers, defendants Kevin R. Davis and J. Randy MacDonald, made a series of false and misleading statements regarding MF Global's financial condition that caused MF Global's stock to trade at artificially inflated prices during the Class Period in violation of the Securities Exchange Act of 1934. On September 19, 2008, defendants moved to dismiss the Complaint for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), and for failure to allege fraud with the specificity required by Fed. R. Civ. P. 9(b) and the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(b)(2). After reviewing the parties' briefs and hearing oral argument, the Court, by Order dated December 29, 2008, granted defendant's motion and dismissed the Complaint with prejudice. This Opinion and Order explains the reasons for that determination and directs the entry of final judgment.
The gist of the Complaint - - the allegations of which the Court accepts as true for purposes of assessing the defendants' motion - - is the claim that defendants issued a series of false and misleading statements "regarding the Company's capital and financial results," and "concealed the material deterioration in the Company's business and the insufficiency of its capital." Complaint ("Compl.") ¶ 3. In support of this claim, the Complaint quotes verbatim and at length from a series of statements made by defendants during the Class Period.*fn1 The first of these statements, namely, a March 17, 2008 press release, acknowledged "significant concerns across the markets," but also noted that MF Global's client funds were "at a higher level" than before and that the Company was "very well capitalized with $1.4 billion in a committed, undrawn credit facility." Id. ¶ 21; Declaration of David B. Anders, Esq. ("Anders Decl.") Ex. C. Two days later, the Company reiterated that it had a strong liquidity position, stated that rumors to the contrary were "without merit," and again cited to its $1.4 billion undrawn credit facility. Compl. ¶ 22; Anders Decl. Ex. F.
On April 18, 2008, MF Global announced preliminary results for its 2008 fiscal year fourth quarter, noting, inter alia, that its volumes and revenues exceeded levels set in the previous three quarters, that it was "experiencing net client asset inflows," and that the Company was "performing well." Compl. ¶ 24; Anders Decl. Ex. G. These results were confirmed in a May 20, 2008 press release. Compl. ¶ 25; Anders Decl. Ex. H. During an earnings call held on that same day, defendant Davis, who was MF Global's CEO, stated that the Company was "in new and robust health" and that "[a]ssuming exchange volumes to stay in their current levels and we maintain our current credit rating, we feel very comfortable of achieving 15 to 20% net revenue growth in fiscal year 2009." Compl. ¶¶ 26-27; Anders Decl. Ex. I at 8. Davis also once again rebutted the "vicious and false rumors" concerning the Company's liquidity, and noted that he believed that "MF Global is more liquid today than at any time in its history." Anders Decl. Ex. I at 3-4.
The May 20, 2008 press release also announced that MF Global had "received a $300 million backstop commitment" from an affiliate of J.C. Flowers & Co. LLC toward the sale of equity-linked, convertible preferred securities. Compl. ¶ 25, Anders Decl. Ex. H. In connection with that commitment, MF Global stated that J.C. Flowers would purchase a minimum of $150 million and a maximum of $300 million of these securities, that the proceeds of this sale would be used to repay a portion of a $1.4 million bridge loan, and that the transaction "allowed our existing shareholders to participate in our future success" and would provide "our stakeholders certainty around our capital structure." Id. The release also noted that the investment "represents a tremendous vote of confidence in the strength of MF Global's diversified business model," and "strongly positions MF Global for future growth." Id. The release further described how each preferred share issued in this arrangement would be convertible at any time into common stock, at the price of $12.50 per share, dividends were to be cumulative at the rate of 6% annually, and the Company could require conversion after five years if the market price of common shares exceeds 125% of the conversion price. Id. During the May 20 earnings call, Davis stated that the $300 million equity commitment would be used to strengthen MF Global's capital structure, that although the Company had more than $600 million in excess capital it still had between $800 and $900 million in financing needs, and that the Company "has faced some of the most difficult market conditions in decades together with some never before seen challenges." Compl. ¶ 27; Anders Decl. Ex. I at 2.
On June 17, 2008, MF Global announced that in order to help repay the bridge loan, it would "offer approximately $150 million of non-cumulative perpetual convertible preference shares" and "$150 million of convertible senior notes... in two private offerings." Compl. ¶ 29; Anders Decl. Ex. J. The June 17 press release also estimated that revenue for fiscal first quarter 2009 would range from $360 to $390 million, explaining that "the narrowing of short term credit spreads had a negative impact on net interest income and overall pre-tax margins in the first quarter," and that there would be "increased non-compensation costs in the current quarter as a result of ongoing changes to its business information, risk management and monitoring systems and corresponding increases in professional fees." Id.
A June 19, 2008 Wall Street Journal article discussed MF Global's June 17 announcement and indicated that the $300 million offering could have impacted MF Global's stock price. Compl. ¶ 30; Anders Decl. Ex. K. On June 20, 2008, the last day of the Class Period, MF Global priced the $300 million offering, with the preferred shares being convertible at $10.45 per share, dividends being paid at 9.75% on a non-cumulative basis, and the Company being able to require conversion after 10 years if the market price of common shares exceeded 250% of the conversion price. Compl. ¶ 31.
After devoting twelve lengthy paragraphs and nearly ten pages to recounting these various statements, the Complaint then proceeds to allege, in one paragraph, that defendants knew, but failed to disclose, that MF Global's business was "weaker than represented," that MF Global "would not be able to achieve the 15%-20% revenue growth projected for fiscal 2009," and that "MF Global's capital would not be sufficient absent additional infusions which would dilute the ownership of current shareholders." Compl. ¶ 33.*fn2
Such allegations fall pitifully short of the pleading requirements here applicable. It is well-established that pursuant to Fed. R. Civ. P. 9(b), a plaintiff alleging fraud must state with particularity "in what respects the statements at issue were false." San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 812 (2d Cir. 1996). Likewise, under the PSLRA, a plaintiff must "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1); see Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 446 F. Supp. 2d 163, 184 (S.D.N.Y. 2006) (to withstand a motion to dismiss, the complaint must "provide enough information to give defendants notice of the 'specific statements or sets of statements believed to be materially false and misleading'") (citation omitted).
Here, as noted, although plaintiff's Complaint quotes verbatim from a series of press releases and other statements allegedly made by defendants during the Class Period, it fails to identify which portions of these statements (if any) were false or misleading.*fn3 On this basis alone, plaintiff's Complaint must be dismissed, because it fails to "afford defendant[s] fair notice of the plaintiff's claim and the factual ground upon which it is based." Ross v. Bolton, 904 F.2d 819, 823 (2d Cir. 1990).
In a similar vein, the Complaint also fails to allege with any specificity the reason or reasons why any of defendants' statements were false or misleading. In Rombach v. Chang, for instance, plaintiff's complaint catalogued a series of press releases issued by defendant and then alleged that "various statements made therein were misleading because they failed to disclose or accurately represent the company's integration and liquidity problems." 355 F.3d 164, 172 (2d Cir. 2004). The Second Circuit affirmed the district court's dismissal of the complaint pursuant to Rule 9(b), holding that "nothing in the complaint explains with adequate specificity how those statements were actually false or misleading." Id. at 172. Similarly, here plaintiff alleges, in a conclusory fashion, that all of the statements recounted in the Complaint were misleading because they failed to disclose that MF Global's business was "weaker than represented" and that the Company had insufficient capital. Compl. ¶ 33. This sole paragraph, out of a 50-paragraph, 19-page Complaint, falls woefully short of satisfying the PSLRA's requirement that plaintiff identify the reasons why each allegedly actionable statement is misleading. See In re IAC/InterActiveCorp Secs. Litig., 478 F. Supp. 2d 574, 591 (S.D.N.Y. 2007) ("It is not enough... for plaintiffs to merely allege that defendants withheld negative information from the market"). Dismissal is thus warranted on this ground as well.
Moreover, separate and apart from the lack of specificity of plaintiff's allegations, the vast majority of defendants' alleged statements are not in any way actionable under the securities laws.
First, many of the statements identified in the Complaint relate to MF Global's past performance, including numerous statements regarding the Company's client level fund, credit facility, liquidity position, 2008 fiscal fourth quarter results, and the amount of its excess capital. It is well-established, however, that "[d]efendants may not be held liable under the securities laws for accurate reports of past successes, even if present circumstances are less rosy." In re Nokia Corp. Sec. Litig., 423 F. Supp. 2d 364, 395 (S.D.N.Y. 2006). Indeed, "[a]s logic dictates, 'disclosure of accurate historical data does not become misleading even if less favorable results might be predictable by the company in the future.'" Id. (internal citations and quotations omitted); see In re IAC Secs. Litig., 478 F. Supp. 2d at 594 (statements that merely "cite historical facts... are not actionable under the securities laws"). Accordingly, defendants here cannot be held liable for any such statements concerning MF Global's historical performance.
Second, a good number of statements identified in the Complaint merely amount to optimistic statements concerning MF Global's then-current or future performance. See, e.g., Compl. ¶ 24 ("we are extremely pleased that our volumes and revenues have remained strong;" "our customers continue to seek MF Global's services;" "the franchise is performing well"); id. ¶ 25 ("I firmly believe we have emerged as a stronger company than ever before;" "We believe [the J.C. Flowers] transaction will provide our stakeholders certainty around our capital structure"); id. ¶ 27 ("business is in new and robust health"). Such "generalized expressions of puffery and optimism," however, "are not actionable under the securities laws." Leykin v. AT&T Corp., 423 F. Supp. 2d 229, 247 (S.D.N.Y. 2006) (holding that no liability attaches to the statement "[t]he first quarter will be by far the low-water mark for our financial performance in 2001"); In re Duane Reade Inc. Sec. Litig., 02 Civ. 6478, 2003 U.S. Dist. LEXIS 21319, at *5 (S.D.N.Y. Nov. 24, 2003) (no liability for statement that "we have a positive outlook and remain confident in our ability to achieve our sales and earnings targets... [and] we anticipate achieving sales of approximately $355 million"). Indeed, issuers of securities "are not required to take a gloomy, ...