14‐2241 In Re: TVIX Securities Litigation

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 16th day of December, two thousand fourteen.

PRESENT: RICHARD C. WESLEY, PETER W. HALL, GERARD E. LYNCH, Circuit Judges. ____________________________________________

ELITE AVIATION LLC, ENDLESS H3,

Plaintiffs‐Appellants,

DAVID SCHOTTENSTEIN, Individually and on behalf of all others similarly situated,

Plaintiff,

WILLIAM BOSTEDO, Individually and on Behalf of All others Similarly Situated, GRACE TRADING, LLC, ANN NICOLOSI, Individually and on behalf of all other similarly situated,

Consolidated‐Plaintiffs,

v. No. 14‐2241

CREDIT SUISSE AG, RENATO FASSBIND, CREDIT SUISSE SECURITIES (USA) LLC, PAUL J. OʹKEEFE, HANS‐ULRICH DOERIG, BRADY W. DOUGAN, D. NEIL RADEY, WALTER B. KIELHOLZ, PETER BRABECK‐LETMATHE, THOMAS W. BECHTLER, ROBERT H. BENMOSCHE, NOREEN DOYLE, JEAN LANIER, ANTON VAN ROSSUM, AZIZ R.D. SYRIANI, DAVID W. SYZ, ERNST TANNER, RICHARD E. THORNBURGH, PETER F. WEIBEL,

Defendants‐Appellees,

NICHOLAS CHERNEY, VELOCITYSHARES LLC, RICHARD HOGE, VLS SECURITIES LLC,

Consolidated‐Defendants–Appellees. ____________________________________________

FOR APPELLANTS: MARK C. RIFKIN (Matthew M. Guiney, on the brief), Wolf Haldenstein Adler Freeman & Herz LLP, New York, NY.

FOR APPELLEES: JAMES H.R. WINDELS (Emmet P. Ong, Melissa C. King, Scott A. Eisman, on the brief), Davis Polk & Wardwell LLP, New York, NY. ____________________________________________

Appeal from the United States District Court for the Southern District of New York (Swain, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED AND DECREED that the judgment of the district court be and

hereby is AFFIRMED.

2 Plaintiffs‐Appellants Elite Aviation LLC and Endless H3 appeal from an

order and judgment dismissing their complaint for failure to state a claim

pursuant to Federal Rule of Civil Procedure 12(b)(6).1 See In re TVIX Secs. Litig.,

___ F. Supp. 2d ___,

(S.D.N.Y. June 9, 2014). We assume the

parties’ familiarity with the underlying facts, procedural history, and issues on

appeal.

Plaintiffs in this putative class action allege that they purchased Velocity

Shares Daily 2x VIX Short Term Exchange Traded Notes (TVIX ETNs) pursuant

to a Registration Statement, Prospectus, Pricing Supplement, and a February

2012 Press Release issued by Defendant Credit Suisse that contained

misstatements or omissions of material fact in violation of Sections 11 and 15 of

the Securities Act, 15 U.S.C §§ 77k, 77o.

In assessing the materiality of an alleged misstatement, we consider

“[w]hether the defendants’ representations, taken together and in context, would

have misled a reasonable investor.” In re Morgan Stanley Info. Fund Secs. Litig.,

(2d Cir. 2010). “It is not sufficient to allege that the investor

1 The standard of review is neither in dispute nor determinative in this matter. This Court reviews a district court’s dismissal under Rule 12(b)(6) de novo, accepting all factual allegations as true and drawing all reasonable inferences in favor of the plaintiff. Litwin v. Blackstone Grp., L.P.,

(2d Cir. 2011).

3 might have considered the misrepresentation or omission important.” In re

ProShares Trust Secs. Litig.,

(2d Cir. 2013) (internal quotation

marks omitted)

First, Plaintiffs allege that the Pricing Supplement contained material

misstatements regarding the risk of holding TVIX ETNs for longer than one

trading session. In particular, Plaintiffs point to a series of hypothetical examples

projecting performance of TVIX ETNs over a twenty‐year period and references

to a “cash payment at maturity” and the “path of daily returns” as suggesting

that the TVIX ETNs could or should be held longer than a single trading day.

However, the Pricing Supplement clearly disclosed in numerous, repeated,

sometimes boldfaced warnings that the ETNs were short‐term trading vehicles

designed to achieve their stated investment objectives only on a daily basis and

that the investment’s value was likely to erode if held for longer periods. The

hypothetical examples—prefaced by extensive disclaimers—could only be

viewed as examples of the effects of various market factors on the ETNs and did

not suggest that they were an appropriate long‐term investment. Neither the

hypothetical examples nor the other language cited by Plaintiffs undercuts the

4 resounding theme of the Pricing Supplement that the ETNs are unsuitable for

any investment period longer than a single day.

.

Second, a subclass of Plaintiffs that purchased TVIX ETNs during a period

in which Credit Suisse had suspended new issuances alleges that the offering

documents and February Press Release omitted material information regarding

the risk of purchasing TVIX ETNs during the suspension period. However, the

Pricing Supplement and Press Release explained Credit Suisse’s complete

discretion over the issuance or nonissuance of new ETNs and that the temporary

suspension of new issuances might cause the ETN’s market value to trade at

values that differed significantly from the ETN’s indicative value. No reasonable

investor could have read these materials without realizing the risk inherent in

purchasing TVIX ETNs at inflated prices in the secondary market during the

suspension period.

“To establish section 15 liability, a plaintiff must first show a primary

violation of section 11. Having affirmed the dismissal of Plaintiffs’ section 11

claims, we also affirm the dismissal of their section 15 claims.”

(citations and alterations omitted).

5 We have considered all of Plaintiffs’ arguments and find them to be

without merit. Accordingly, for the reasons set forth above, the judgment of the

district court is AFFIRMED.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk

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