VLADIMIR GUSINSKY, TRUSTEE, FOR THE VLADIMIR GUSINSKY LIVING TRUST, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
BARCLAYS PLC, et al., Defendants.
David Avi Rosenfeld, Esq., Samuel Howard Rudman, Esq., Christopher Michael Barrett, Esq., Robbins Geller Rudman & Dowd LLP, Melville, NY, Gregory Mark Nespole, Esq., Robert B. Weintraub, Esq., Wolf Haldenstein Adler Freeman & Herz LLP, New York, NY, for Plaintiffs.
Jonathan D. Schiller, Esq., James Meadows, Esq., Boies Schiller & Flexner LLP, New York, NY, Michael Brille, Esq., Boies Schiller & Flexner LLP, Washington, D.C., David H. Braff, Esq., Jeffrey T. Scott, Esq., Matthew S. Fitzwater, Esq., Matthew J. Porpora, Esq., Sullivan & Cromwell LLP, New York, NY, Andrew J. Levander, Esq., Dechert LLP, New York, NY, Cheryl A. Krause, Esq., Dechert LLP, Philadelphia, PA, for Defendants.
OPINION AND ORDER
SHIRA A. SCHEINDLIN, District Judge.
Plaintiffs bring this putative class action on behalf of themselves and others similarly situated (the "Class") against Barclays PLC, Barclays Bank PLC ("Barclays Bank"), and Barclays Capital Inc., ("BCI") (collectively, "Barclays"), and John Varley, Robert Diamond, Christopher Lucas, and Marcus Agius ("Individual Defendants" and, together with Barclays, "Defendants"). The Class consists of all persons and entities who purchased American Depositary Shares ("ADSs") of Barclays PLC between July 10, 2007 and June 27, 2012, inclusive (the "Class Period"), and were allegedly damaged thereby. Plaintiffs assert violations of: (1) Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder against all defendants; and (2) Section 20(a) of the Exchange Act against the Individual Defendants.
Defendants move under Federal Rule of Civil Procedure 12(b)(6) to dismiss the Second Amended Complaint ("SAC") on the grounds that: (1) Plaintiffs fail to plead any actionable misrepresentations; (2) Plaintiffs fail to plead facts giving rise to a strong inference of scienter; (3) Plaintiffs fail to plead loss causation; (4) many of the alleged misstatements are not actionable because they are protected by the safe harbor provision in the Private Securities Litigation Reform Act of 1995 ("PSLRA"), or the bespeaks caution doctrine; and (5) Plaintiffs' Section 20(a) claims for control person liability must be dismissed because Plaintiffs have failed to adequately allege a primary violation of Section 10(b) or culpable participation on the part of the Individual Defendants. For the following reasons, Defendants' motion to dismiss is granted.
A. The Parties
Barclays PLC is a publicly held corporation based in the United Kingdom ("U.K."), that provides global financial services. Barclays PLC's ADSs are registered with the Securities Exchange Commission ("SEC") pursuant to the Exchange Act and traded on the New York Stock Exchange. Barclays Bank, a wholly-owned subsidiary of Barclays PLC, is also a global financial services provider. BCI, also a wholly-owned subsidiary of Barclays PLC, provides securities brokerage and financial advisory services.
Varley was Group Chief Executive Officer ("CEO") of Barclays from 2004 until he resigned in 2011 and Diamond took over. Diamond was CEO from January 1, 2011 to July 3, 2012, and President and Chief Executive of Corporate and Investment Banking and Wealth Management prior to 2011. Lucas was Chief Financial Officer and Group Finance Director during the Class Period. Agius was Chairman of the Board from January 1, 2007 throughout the Class Period. Plaintiffs purchased Barclays ADSs during the Class Period.
B. Barclays' Role in Setting LIBOR Rates
Plaintiffs' fraud allegations arise out of Barclays' participation in setting the London Interbank Offered Rate ("LIBOR"). LIBOR is a benchmark reference rate devised by banks in the 1980s at the behest of the British Bankers' Association in order to bring a measure of uniformity to the market for instruments such as interest-rate swaps, forward-rate agreements, and foreign currency options. Today, LIBOR rates serve as reference rates underlying numerous derivative financial instruments traded in the over-the-counter market and on exchanges all over the world. In addition, LIBOR rates are the reference rates underlying various types of loan agreements worldwide.
LIBOR rates are produced for ten currencies and fifteen maturities, i.e. borrowing periods, per currency. For each currency there is a bank panel comprised of six to eighteen banks ("Contributor Banks") that is intended to reflect the balance of the market. Each Contributor Bank is asked to estimate the rate at which it could borrow funds "by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am" (the "Submission Rates"), without reference to rates contributed by other Contributor Banks. Thomson Reuters, the designated calculation agent for LIBOR, collects the Submission Rates daily, discards the highest and lowest twenty-five percent of the Submission Rates, and averages the remaining rates to arrive at the LIBOR rate for a given currency and maturity. Thomson Reuters distributes the resulting 150 LIBOR rates to the market. Thomson Reuters also posts individual Submission Rates identified with the responsible Contributor Bank.
From at least 2005 until the present, Barclays has been a member of all ten LIBOR bank panels. During the Class Period, Barclays made its daily submissions through Barclays' London Non-Sterling Liquidity Management Desk (the "London Money Market Desk"), which was then part of BCI. Plaintiffs allege that Barclays participated in two schemes to manipulate its LIBOR Submission Rates. First, Barclays' traders attempted to influence LIBOR for financial gain by directing LIBOR submitters to submit inaccurate Submission Rates for Barclays. From 2005 through 2009, Barclays' traders contacted persons responsible for submitting Barclays' Submission Rates to request that they submit a specific rate, or alter the actual rate in a particular manner and in some cases the Barclays submitters accommodated these requests. Barclays' swap traders also communicated similar requests to submitters from other Contributor Banks with the goal of allowing the traders and their counterparts at other financial institutions to increase profits or minimize losses.
Second, Barclays attempted to enhance market perception of its financial health by directing its LIBOR submitters to submit rates that were lower than the rates at which it legitimately believed it could borrow funds. Specifically, Barclays' management directed its Dollar LIBOR submitters to submit rates that were closer to the expected rates of other Contributor Banks rather than the accurate LIBOR rates, and the Dollar LIBOR submitters acceded to the demands. The manipulations allegedly began in August 2007 in response to negative publicity regarding Barclays' liquidity and continued throughout at least January 2009. Plaintiffs allege that "Barclays had no specific systems or controls for its LIBOR or EURIBOR submissions process until December 2009" and did not conduct formal monitoring until mid-2010. In addition, Barclays' compliance department allegedly was aware of existing conflicts of interest and improper instructions to submitters but did not take remedial action.
C. The Alleged Materially False and Misleading Misstatements
Plaintiffs allege that Barclays' investors were unaware of Barclays' manipulation of LIBOR and EURIBOR rate submissions and lack of internal controls prior to and throughout the Class Period and, in fact, were led to believe that Barclays had robust internal controls based on materially false and misleading statements made during the Class Period. Plaintiffs allege four categories of misstatements. First, Plaintiffs cite representations in Barclays' financial statements from 2006-2011 regarding: (a) risk management and internal controls; (b) corporate responsibility and ethics; and (c) legal compliance (together, "Business Practices"). Second, Plaintiffs refer to statements Diamond made during a conference call in response to an analyst's observation that Barclays appeared to be "consistently paying slightly higher than most of the other U.K. banks in the LIBOR rate." Third, Plaintiffs allege that the Submission Rates themselves were actionable misstatements. Fourth, Plaintiffs allege that Barclays' failure to disclose its contingent liabilities as required by the International Accounting Standards Board and the SEC was an actionable omission.
D. Barclays' Disclosures Regarding the LIBOR Investigation
On April 27, 2011, Barclays disclosed in its first quarter 2011 interim management statement that it was being investigated by the U.K. Financial Services Authority ("FSA"), U.S. Commodity Futures Trading Commission ("CFTC"), SEC, and U.S. Department of Justice ("DOJ") concerning its LIBOR submissions (together, the "Investigations"). In February 2012, regulators gave Barclays an ultimatum: enter into a settlement regarding its conduct in manipulating LIBOR rates or face criminal and civil charges.
On June 27, 2012, after several months of negotiation, Barclays announced that it had reached settlement agreements with the FSA, CFTC and DOJ totaling over $450 million (the "Settlements"). That day, Barclays' ...