23-862-cv Gomez v. Credit Suisse AG

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 TO 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 9th day of February, two thousand twenty-four.

PRESENT: ROBERT D. SACK, REENA RAGGI, JOSEPH F. BIANCO, Circuit Judges. _____________________________________

ADELINA GOMEZ, on behalf of herself and all others similarly situated,

Plaintiff-Appellant,

v. 23-862-cv

CREDIT SUISSE AG,

Defendant-Appellee. _____________________________________

FOR PLAINTIFF-APPELLANT: DANIEL CENTNER, Peiffer Wolf Carr Kane Conway & Wise, LLP, New Orleans, Louisiana (Daren A. Luma, Daren A. Luma, PLLC, White Plains, New York, on the brief).

FOR DEFENDANT-APPELLEE: HERBERT S. WASHER (John S. MacGregor and Sheila C. Ramesh, on the brief), Cahill Gordon & Reindel LLP, New York, New York. Appeal from a judgment of the United States District Court for the Southern District of

New York (John P. Cronan, Judge).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment, entered on May 2, 2023, is AFFIRMED.

Plaintiff-Appellant Adelina Gomez appeals from the dismissal pursuant to Federal Rule of

Civil Procedure 12(b)(6) of her putative class action against Defendant-Appellee Credit Suisse AG

(“Credit Suisse”), brought under Section 10(b) of the Securities Exchange Act of 1934 (the

“Exchange Act”), 15 U.S.C. § 78j(b), and Securities and Exchange Commission (“SEC”) Rule

10b-5,

.10b-5. The district court granted Credit Suisse’s motion to dismiss after

finding that Gomez had failed to plausibly allege a material misstatement or omission, a

manipulative scheme, or an inference of scienter, as required to state a claim under Section 10(b)

and Rule 10b-5, in connection with Credit Suisse’s offering of certain Exchange Traded Notes

(“ETNs”) trading under the name DGAZ. See Gomez v. Credit Suisse AG, No. 22 Civ. 115 (JPC)

(BCM),

(S.D.N.Y. Mar. 31, 2023). 1

To avoid dismissal under Rule 12(b)(6), “a complaint must contain ‘enough facts to state

a claim to relief that is plausible on its face.’” Biro v. Condé Nast,

(2d Cir.

2015) (quoting Bell Atl. Corp. v. Twombly,

(2007)). We review a Rule 12(b)(6)

dismissal de novo, “accepting as true the factual allegations in the complaint and drawing all

inferences in the plaintiff’s favor.”

Allegations of securities fraud must satisfy the

heightened pleading burdens of both Federal Rule of Civil Procedure 9(b) and the Private

1 The district court granted leave to amend within thirty days “if [Gomez could] remedy the pleading deficiencies” it identified. Id. at *14. Gomez did not file an amended complaint within thirty days, and the district court accordingly entered final judgment on May 2, 2023.

2 Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b)(2)(A) (“PSLRA”), which require a

pleading of, inter alia, the defendant’s mental state and “the circumstances constituting fraud,”

Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC,

(2d Cir. 2015)

(quoting Rule 9(b)), and “facts giving rise to a strong inference that the defendant acted with the

required state of mind,” Gamm v. Sanderson Farms, Inc.,

(2d Cir. 2019)

(quoting 15 U.S.C. § 78u-4(b)(2)(A)). We assume the parties’ familiarity with the underlying

facts, the procedural history of the case, and the issues on appeal, which we reference only as

necessary to explain our decision to affirm.

Gomez argues that her complaint stated claims for both (1) material misstatements or

omissions under Rule 10b-5(b) and (2) market manipulation under Rule 10b-5(a) and (c). 2 An

element of both claims is scienter. See In re Philip Morris Int’l Inc. Sec. Litig.,

(2d Cir. 2023) (material misrepresentation or omission); Set Cap. LLC v. Credit Suisse Grp. AG,

(2d Cir. 2021) (market manipulation). For purposes of Rule 10b-5, scienter is

defined as an “intent to deceive, manipulate, or defraud.” Tellabs, Inc. v. Makor Issues & Rts.,

Ltd.,

(2007) (internal quotation marks and citation omitted); see also In re Philip

Morris Int’l Inc. Sec. Litig.,

. “Scienter may be established by alleging facts

(1) showing that the defendants had both motive and opportunity to commit the fraud or

(2) constituting strong circumstantial evidence of conscious misbehavior or recklessness.” New

2 The complaint included a single cause of action for violations of Section 10(b) and Rule 10b-5, focusing on fraudulent misrepresentation, and only mentioned “manipulation” in two instances, neither of which alleged action by Credit Suisse. See Joint App’x 33–34 (“Plaintiff [believed] that the market . . . would continue to be an efficient one free from manipulation”; “Plaintiff was misled to believe the prices . . . were . . . not rigged by manipulators”). However, given Gomez’s allegations that Credit Suisse “acted with scienter in making the decision to delist and suspend further issuance” of DGAZ and “artificially controlled the market,” Joint App’x 33–35, we address both potential claims here.

3 Eng. Carpenters Guaranteed Annuity & Pension Funds v. DeCarlo,

(2d Cir.

2023) (internal quotation marks and citation omitted). “Any allegation of conscious misbehavior

or recklessness should be viewed holistically and together with the allegations of motive and

opportunity to determine whether the complaint supports a strong inference of scienter.”

(internal quotation marks and citation omitted). And to adequately plead conscious misbehavior

or recklessness, a plaintiff must allege “conscious recklessness—i.e., a state of mind

approximating actual intent, and not merely a heightened form of negligence.” S. Cherry St., LLC

v. Hennessee Grp. LLC,

(2d Cir. 2009) (first emphasis added) (internal quotation

marks and citation omitted).

“Circumstantial evidence can support an inference of scienter . . . where defendants (1)

benefitted in a concrete and personal way from the purported fraud; (2) engaged in deliberately

illegal behavior; (3) knew facts or had access to information suggesting that their public statements

were not accurate; or (4) failed to check information they had a duty to monitor.” Emps.’ Ret.

Sys. of Gov’t of the V.I. v. Blanford,

(2d Cir. 2015) (internal quotation marks

and citations omitted). In any event, the inference of intent to defraud or manipulate “must be

cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs,

.

As set forth below, the district court correctly concluded that Gomez failed to plausibly

allege a strong inference of scienter as required for a fraudulent misrepresentation or market

manipulation claim. 3 Gomez cites as motives Credit Suisse’s “potential[]” interest in either

3 Because we affirm the dismissal of the complaint on this ground, we need not address the district court’s alternate holding that the factual allegations were also insufficient to plausibly allege a material misrepresentation or manipulative acts under the other elements of those claims.

4 “sell[ing] into the short squeeze” that occurred when DGAZ’s price spiked in August 2020 or

“receiv[ing] continued fees instead of having to pay to accelerate all of the outstanding notes.”

Appellant’s Br. at 22. Neither motive is plausible. First, as alleged in the complaint, Credit

Suisse did not sell any of its 431,350 units of DGAZ between June 22, 2020 and August 12, 2020,

even though the market price of DGAZ increased from less than $600 to approximately $25,000

per note during that period. In other words, Credit Suisse’s decision not to sell the DGAZ units

it held during this period was a decision to abstain from making a potentially multi-billion dollar

profit. Second, the investor fees Credit Suisse received between June 22, 2020 and August 12,

2020 only amounted to approximately $135,600. 4 The inference that Credit Suisse engaged in

securities fraud to collect this sum—particularly when it could have made more than $10 billion

by selling its DGAZ units—is not one that we find plausible. In short, neither motive is consistent

with the facts as alleged in the complaint.

Alternatively, Gomez argues that an inference of scienter can be drawn from Credit

Suisse’s alleged recklessness in failing to disclose information. We disagree. “Where [a] motive

is not apparent, . . . the strength of the circumstantial allegations must be correspondingly greater.”

Kalnit v. Eichler,

(2d Cir. 2001). Here, the circumstantial allegations are not

strong. The offering documents for DGAZ contained detailed warnings of the risks involved in

holding the ETN. For example, Credit Suisse warned that holding DGAZ for “more than a single

day” could result in the loss of the full value of the investment, Joint App’x at 126; that the trading

price of DGAZ could “vary significantly” from the value of the underlying natural gas index the

4 In her reply brief, Gomez notes that this figure does not appear in the complaint. However, she takes no substantive issue with its calculation by the district court, which was based on the complaint’s allegation that the fees amounted to “approximately $1.5 million annually.” Joint App’x at 14, 82.

5 ETN was intended to track “because the market value reflects investor supply and demand for the

ETNs,” id. at 115; that a decision by Credit Suisse to cease issuing DGAZ could, by decreasing

supply, “cause the ETNs to trade at a premium over the [value of the underlying index],” id. at 98;

and that Credit Suisse could delist DGAZ “in [its] sole discretion . . . at any time and for any

reason,” id. at 145. Many of these warnings were in bold or otherwise emphasized. In addition

to these disclosures, Credit Suisse issued a press release on June 22, 2020, announcing that it would

cease issuing DGAZ immediately and delist DGAZ by July 12, 2020. The press release reiterated

the warning that Credit Suisse’s actions could impact the trading price of DGAZ, because the

market value of DGAZ may be “influenced by, among other things, the levels of actual and

expected supply and demand for the ETNs in the secondary market,” and cautioned in particular

that the development of a price premium—in which the market price of DGAZ would rise above

the value of the underlying index—or the illiquidity of the market could lead to substantial losses.

Joint App’x at 293. Additionally, Gomez had access to press reports indicating that conditions

were ripe for the development of a price premium, which would put pressure on investors, such as

herself, with short positions in DGAZ.

The warnings Credit Suisse included in the press release, on top of those in the offering

documents, adequately captured the range of risks investors in DGAZ faced, particularly when the

offering documents had cautioned investors against holding DGAZ for more than one day. As

such, the absence of a specific warning about how the combination of a price premium and an

illiquid market could or would likely affect investors with short interests does not constitute

sufficient circumstantial evidence of recklessness to give rise to an inference of scienter. An

issuer “cannot be expected to predict and disclose all possible negative results across any market

6 scenario,” In re ProShares Tr. Sec. Litig.,

(2d Cir. 2013), and the alleged

omissions here, in light of the disclosures, do not constitute “strong evidence of conscious

misbehavior or recklessness,” Kalnit,

(emphasis omitted).

Gomez does not specifically argue that Credit Suisse’s other actions—namely, its decisions

to delist DGAZ, to ultimately accelerate it, or to hold rather than sell its inventory—support an

inference of scienter. In any event, we do not find that these actions plausibly support such an

inference, whether viewed through the lens of motive and opportunity discussed above, or so as to

establish recklessness. See In re Carter-Wallace, Inc. Sec. Litig.,

(2d Cir. 2000)

(defining recklessness as “represent[ing] an extreme departure from the standards of ordinary care

to the extent that the danger was either known to the defendant or so obvious that the defendant

must have been aware of it”). Outside the context of scienter, Gomez suggests that Credit Suisse

should have known that its actions posed a “very likely, almost certain risk” of a price premium

developing. Appellant’s Reply Br. at 3. However, as her own complaint alleges, the decision to

delist an ETN had historically caused the ETN to trade at a discounted price, not an inflated one,

and, even in this instance, DGAZ maintained a stable trading price for nearly one month after it

was delisted. In short, the complaint fails to allege recklessness sufficient to support an inference

of scienter, let alone one “at least as compelling as [the] opposing inference of nonfraudulent

intent.” Tellabs,

. As a result of its failure to state plausible facts supporting an

inference of scienter, the complaint fails to state a claim under either the material misstatement or

omission or market manipulation theory of Section 10(b) liability. Therefore, the complaint was

properly dismissed.

* * *

7 We have considered Gomez’s remaining arguments and conclude that they are without

merit. Accordingly, the judgment of the district court is AFFIRMED.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court

8