In a January 5, 2011 order, Southern District of New York
Judge Paul Crotty
granted the defendants' motions to dismiss the consolidated Barclays Bank
subprime-related securities class action lawsuit. A copy of Judge Crotty's
order can be found here.
Although Judge Crotty's order is in many respects just the latest in the series
of subprime-related securities lawsuit dismissal motion rulings, there are a
number of interesting things about this ruling, as discussed below.
Between April 2006 and April 2008, Barclays completed
four American Depositary Shares offerings through which it raised total
proceeds of $5.45 million. The four offerings were dated April 21, 2006 (the
Series 2 offering), September 10, 2007 (the Series 3 offering), November 30,
2007 (the Series 4 offering) and April 8, 2008 (the Series 5 offering).
These offerings were presented in reliance on two Shelf
Registration statements, dated September 14, 2005 and August 31, 2007, as well
as Supplemental Prospectuses dated as of the offering date of each of the four
On November 15, 2007, the company issues an unscheduled
"Trading Update" in which it disclosed the company's exposure to U.S.
subprime mortgages and mortgage backed securities. In a series of subsequent
disclosures the company disclosed various write-downs of these assets, culminating
in significant impairments and write-downs disclosed in its 2008 interim
results and 2008 annual report.
As detailed here, in March 2009,
investors who had purchased securities in one or more of the four offerings
filed the first of several securities class action lawsuits against the
company, certain of its directors and officers, and its offering underwriters.
The lawsuits, which ultimately were consolidated, alleged the offering documents
contained materially misrepresentations in violation of the Securities Act of
In the plaintiffs' consolidated amended complaint (here),
the plaintiffs essentially alleged that Barclays had failed to disclose and
properly account for the risky real estate business in which it was engaged.
Specifically, the plaintiffs alleged that the company had
failed to timely and adequately disclose and write down its exposure to risky
credit assets; had failed to comply with applicable accounting standards and
SEC requirements; and misleadingly assured investors that Barclays' risk
management practices helped the company avoid the worst credit market risks.
The defendants moved to dismiss.
The January 5 Order
After first ruling that the plaintiffs lacked standing to
bring claims under Section 12(a)(2) (because the plaintiffs had not alleged
that they had purchased their shares directly from the defendants), Judge Crotty
then ruled that the Securities Act claims of the plaintiffs that had purchased
their shares in the first three of the four offerings were time barred.
Judge Crotty ruled that the Series 2 and Series 3
plaintiffs were on inquiry notice of their claims at least as of the November
15, 2007 Trading Update, which Judge Crotty said disclosed "precisely the
information that Lead Plaintiffs claim Barclays should have disclosed
earlier." Because these plaintiffs filed their claims more than a year after
the Trading Update, Judge Crotty held their claims were untimely.
Similarly, Judge Crotty ruled the Series 4 plaintiffs
were on inquiry notice of their claims on February 19, 2008, the date Barclays
release its 2007 annual results. As the Series 4 plaintiffs also did not file
their claims within a year of that release, Judge Crotty held that the Series 4
plaintiffs claims were also time barred.
Interestingly, Judge Crotty held that the U.S. Supreme
Court's ruling in Merck (about which refer here) was not controlling on
the statute of limitations issues, but he went on to find that even if it did
apply that the Merck standard had been satisfied.
Judge Crotty did reach the pleading sufficiency of the
Series 5 plaintiffs' allegations. However, Judge Crotty held that the Series 5
plaintiffs' allegations were insufficient.
With respect to the plaintiffs' allegations regarding the
defendants' alleged failure to timely disclose and write down the impaired real
estate assets, he held that the plaintiffs had failed to allege "that
Barclays did not truly believe its subjective valuations."
With respect to the plaintiffs allegations that Barclays
had failed to adequately itemize the company's mortgage-related assets
exposures, Judge Crotty held that the company had not duty to further itemize
its mortgage asset exposure.
Finally Judge Crotty held that the plaintiffs had not
adequately alleged that the defendants' did not comply with applicable
accounting standards or that the company's disclosures regarding its risk
management practices were actionable.
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