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IBEW Local Union No. 58 Pension Trust Fund & Annuity Fund v. The Royal Bank of Scot. Grp., PLC

United States Court of Appeals, Second Circuit

April 15, 2015

IBEW LOCAL UNION NO. 58 PENSION TRUST FUND AND ANNUITY FUND, Lead Plaintiff-Appellant,
v.
THE ROYAL BANK OF SCOTLAND GROUP, PLC, SIR THOMAS FULTON MCKILLOP, JOHN CAMERON, Defendants-Appellees, LIGHTHOUSE FINANCIAL GROUP, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiff, ETHAN GOLD, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Movant-Consolidated Plaintiff, SIR FREDERICK ANDERSON GOODWIN, Defendant-Consolidated Defendant-Appellee, THE ROYAL BANK OF SCOTLAND PLC, SIR, LAWRENCE K. FISH, GORDON F. PELL, GUY R. WHITTAKER, COLIN A.M. BUCHAN, JAMES CURRIE, SIR STEPHEN A. ROBSON, ROBERT A. SCOTT, PETER D. SUTHERLAND, ARCHIBALD HUNTER, CHARLES J. KOCH, JOSEPH P. MACHALE, MERRILL LYNCH, PIERCE, FENNER & SMITH CORPORATED, GREENWICH CAPITAL MARKETS, LLC, WACHOVIA CAPITAL MARKETS, INC., WACHOVIA CAPITAL MARKETS, LLC, MORGAN STANLEY & CO. INCORPORATED, UBS SECURITIES LLC, RBC CAPITAL MARKETS CORPORATION, BANC OF AMERICA SECURITIES LLC, FREDERICK A. GOODWIN, SIR THOMAS MCKILLOP, JANIS KONG, MARK FISHER, JAMES MCGILL CURRIE, WILLIAM M. FRIEDRICH, Defendants, SIR THOMAS FULTON WILSON MCKILLOP, JOHN ALISTAIR NIGEL CAMERON, Consolidated Defendants

Argued June 19, 2014.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK.

Appeal from orders of the United States District Court for the Southern District of New York (Daniels, J.) dismissing securities fraud claims and denying motions for reconsideration, to alter or amend the judgment, and for leave to file a second amended complaint.

JOSEPH D. DALEY (Theodore J. Pintar, Jason A. Forge, Darryl J. Alvarado, Samuel H. Rudman, on the brief), Robbins Geller Rudman & Dowd LLP, San Diego, California, and Melville, New York, for Plaintiffs-Appellants.

SETH P. WAXMAN (Matthew Guarnieri, David S. Lesser, Andrea J. Robinson, Nolan J. Mitchell, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, New York, New York, and Boston, Massachusetts, for Defendants-Appellees.

Before: WINTER, LEVAL, and CHIN, Circuit Judges. Judge Leval concurs in part and dissents in part in a separate opinion.

OPINION

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Chin, Circuit Judge :

In this putative securities class action, investors who purchased or acquired American Depository Shares (" ADSs" ) of The Royal Bank of Scotland Group, PLC (" RBS" ) allege that RBS and several of its top executives made false and misleading statements that inflated the ADSs' prices. They brought this action below under, inter alia, sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the " Exchange Act" ), 15 U.S.C. § § 78j(b), 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5.

The district court (Daniels, J. ) granted defendants' motion to dismiss and denied plaintiffs' motions for reconsideration, to alter or amend the judgment, and for leave to amend. Plaintiffs appeal. We affirm.

STATEMENT OF THE CASE

A. The Facts

The facts alleged in the proposed Second Consolidated Amended Complaint (" SCAC" ) are assumed to be true. They may be summarized as follows:

Between 2001 and 2006, RBS -- one of the world's largest financial institutions -- experienced rapid growth by repackaging residential subprime mortgages and leveraged loans into residential mortgage backed securities (" RMBS" ), collateralized debt obligations (" CDOs" ), and collateralized loan obligations (" CLOs" ). The housing market bubble burst in 2006 as housing sales decreased, inventories increased, mortgage delinquencies soared, and subprime assets lost much of their value. In part, the market collapsed because of the rise of " less creditworthy borrowers, more highly leveraged loans, and more risky mortgage structures," which ultimately caused massive defaults. App. at 1179. RBS, along with many of its peers, deteriorated as the housing and credit markets crumbled.

RBS's financial downfall was compounded by the timing of its acquisition of ABN AMRO, a Dutch bank also heavily invested in credit markets, in October 2007. Plaintiffs acquired RBS ADSs on the open market between October 17, 2007 and January 20, 2009 (the " Class Period" ), including ADSs acquired pursuant to the ABN AMRO acquisition.

Prior to and during the Class Period, RBS provided an optimistic outlook as discussed further below. On April 22, 2008, RBS announced a Rights Issue to issue additional shares and raise capital. Notwithstanding its attempts to raise capital and salvage its business, RBS could not survive the market's crash. The U.K. government provided an initial $40 billion bailout and took a 94% ownership stake in RBS. The price of the ADSs dropped substantially during the Class Period.

Plaintiffs contend that defendants made fraudulent statements to investors in three respects: (1) RBS's exposure to subprime assets, (2) the success (or lack thereof) of RBS's acquisition of ABN AMRO, and (3) RBS's Rights Issue announcement to raise capital.

1. Exposure Statements

Plaintiffs claim that RBS misrepresented its exposure to subprime assets on three occasions. First, during an August 3, 2007 conference call, John Cameron, Chief Executive of Corporate Banking and Financial Markets and a director of RBS, was asked about RBS's exposure to leveraged lending and CDOs. He responded that RBS's " exposure to these sorts of markets" had been " cut back a lot since

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the year end of '06." App. at 1346. Cameron added that " [w]e have hedges in all sorts of places against the various portfolios" and " [w]e've taken no credit losses anywhere in the portfolio." App. at 1346. During the call, Frederick Anderson Goodwin, RBS's CEO and a director of RBS, and Sir Thomas Fulton McKillop, Chairman of the Board of RBS, also represented that RBS had not been affected by the crash of the subprime mortgage market. Plaintiffs allege that these statements were false because RBS had increased its ...


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