On September 28, 2012, the Southern District of New York dismissed in its entirety a securities fraud action against UBS AG, certain UBS executives, and several underwriters of UBS securities. In re UBS AG Sec. Litig., 2012 WL 4471265 (S.D.N.Y. Sept. 28, 2012) (Sullivan, J.).4 The court held that in light of the Supreme Court’s decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011) (Thomas, J.), plaintiffs could not rely on the group pleading doctrine to assert Section 10(b) and Rule 10b-5 claims against individual UBS defendants who did not themselves make a misstatement.


The plaintiffs alleged that UBS and a number of its executives had violated Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5, by allegedly:

[I]ssuing fraudulent statements with respect to (1) UBS’s mortgage-related securities portfolio (the alleged “mortgage-related securities fraud”); (2) UBS’s Auction Rate Securities (“ARS”) portfolio (the alleged “ARS fraud”); and (3) UBS’s purported compliance with United States tax and securities laws by UBS’s Swissbased cross-border private banking business for American clients (the alleged “tax fraud”).

In re UBS, 2012 WL 4471265, at *1. The plaintiffs also asserted claims under Sections 11, 12(a)(2), and 15 of the Securities Act against UBS, certain individual defendants, and seven underwriters in connection with the company’s June 13, 2008, Rights Offering. Id. The defendants moved to dismiss the complaint. Id.

The Court Dismisses All Claims against the Individual Defendants for Failure to Allege That Each Defendant “Made” a Misstatement under Janus

In response to the UBS defendants’ motion to dismiss, the plaintiffs invoked the group pleading doctrine. Id. at *9. This doctrine:

[A]llows a plaintiff to circumvent the general pleading rule that fraudulent statements must be linked directly to the party accused of [ ] fraudulent intent, by allowing a court to presume that certain group-published documents such as SEC filings and press releases are attributable to corporate insiders involved in the everyday affairs of the company.

Id. (internal quotation marks, citation, and alterations omitted). The UBS defendants contended that the group-pleading doctrine “does not survive the [Private Securities Litigation Reform Act (‘PSLRA’)] and has been abrogated by the Supreme Court’s recent Janus decision.” Id. at *10.

The UBS court began its analysis by noting that, while the Second Circuit “never squarely addressed whether the [group-pleading] doctrine survived the PSLRA,” most courts in the Southern District of New York to consider the issue pre-Janus “held that it did.”5 Id. The court observed that “the majority view in this district” was “wholly at odds with the view of each circuit court to have squarely addressed the issue prior to Janus.” Id.

Nevertheless, the UBS court explained that courts have “since acknowledged” that “the Supreme Court’s decision in ‘Janus calls into question the viability of the group pleading doctrine for federal securities law claims.’” Id. (quoting In re Optimal U.S. Litig., 837 F. Supp. 2d 244, 263 (S.D.N.Y. 2011) (Scheindlin, J.)). “In Janus, the Supreme Court held that because ‘none of the statements in the prospectuses were attributed, explicitly or implicitly, to [a defendant],’ there was no basis for concluding that it made any actionable misrepresentations or omissions.” Id. (alteration in original) (quoting Janus, 131 S. Ct. at 2304-05 & n. 11). “Indeed, the Court explained that defendants must have ‘made’ the allegedly problematic statement by having ‘authority over the content of the statement and whether and how to communicate it.’” Id. (quoting Janus, 131 S. Ct. at 2303). “Therefore, even ‘significant involve[ment]’ in preparing a statement was deemed insufficient for liability.” Id. (quoting Janus, 131 S. Ct. at 2305).

The plaintiffs argued that Janus “does not apply to ‘corporate insider[s] responsible for the day to day affairs’ of a company.” Id. Rejecting this argument, the UBS court found that the plaintiffs were “attempt[ing] to read into Janus a distinction that does not appear in the [Court’s] opinion.” Id. “[W]hile it is true that Janus might not alter the well-established rule that a corporation can act only through its employees and agents, it is … also true that a theory of liability premised on treating corporate insiders as a group cannot survive a plain reading of the Janus decision.” Id. (internal quotation marks and citation omitted). The court explained that “[a]lthough Janus might not necessarily imply that there can be only one maker of a statement in the case of express or implicit attribution, the individual defendants still must have actually ‘made’ the statements under the new Janus standard to be held liable under Section 10(b).” Id. (internal quotation marks and citation omitted). The court emphasized that the complaint did not allege that any of the individual UBS defendants themselves made any allegedly material misstatements. “[W]here an [i]ndividual [d]efendant has not ‘made’ the allegedly material misstatements,” the court held that “he cannot be liable under the Exchange Act.” Id. at *11 (citing Janus, 131 S. Ct. at 2301). The court therefore dismissed all Section 10(b) claims against the individual defendants. Id.

The Court Dismisses the Remaining Section 10(b) Claims for Failure to Allege Scienter and Materiality

With respect to the plaintiffs’ Section 10(b) claims concerning the alleged mortgage-related securities and ARS frauds, the court determined that “a reasonable person would not deem [the] [p]laintiffs’ purported inference of scienter to be ‘at least as compelling as an opposing inference one could draw from the facts alleged.’” Id. at *21. The court reasoned that “[t]he more compelling inference, at least based on the facts as they are alleged in the [a]mended [c]omplaint, is that the UBS [d]efendants simply did not anticipate that there would be a market-wide downturn impacting its various businesses and, ultimately, UBS’s shareholders.” Id. The court therefore found that “any alleged failure to disclose was ‘more likely attributable to the financial turmoil occurring in 2007 than to fraud or recklessness.’” Id.

As to the alleged misstatements concerning UBS’s alleged tax fraud, the court found that “generalized statements” addressing UBS’s “‘adherence to ethical and legal standards’” amounted to “non-actionable puffery” and did “not constitute material misstatements within the context of … the Exchange Act[.]” Id. at *34, *36. The UBS court cited the Second Circuit’s decision in ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (Kelly, Jr., J.), which “refined the puffery standard.” Id. at *35. In JP Morgan, the Second Circuit explained that “statements that are ‘too general to cause a reasonable investor to rely upon them,’ including ‘mere [ ] generalizations regarding … business practices’ are no more than non-actionable ‘puffery.’” Id. (alterations in original) (quoting JP Morgan, 553 F.3d at 205-06). The JP Morgan court held that alleged statements regarding the company’s “highly disciplined” risk management and “standardsetting reputation for integrity” were “precisely the type of puffery that this and other circuits have consistently held to be inactionable.” JP Morgan, 553 F.3d at 205-06 (internal quotation marks omitted).

Finally, the UBS court found immaterial the plaintiffs’ claims that “UBS [had] inflated the amount of net new money it generated each year by including net new money … from its cross-border business.” UBS, 2012 WL 4471265, at *22-23. The defendants represented that “UBS’s Swiss-based cross-border business contributed just 0.3% of the overall net new money of UBS’s Global Wealth Management business in 2007.” Id. The UBS court explained that “the Second Circuit and district courts within this Circuit have repeatedly held that accounting categorizations of such small magnitude, when compared against a company’s much larger total assets, are not ‘material.’” Id. at *23.