please the courts as the core is aware from the briefing in this matter there are really two distinct and independent cases involved in this appeal there is the one nine hundred thirty three act case on the one hand involving enron employees stock options and then there is the one nine hundred thirty four act case on the other hand involving the acquisition the purchase of enron common stock in one preferred stock by u b s retail clients i want to begin today by focusing us on the one nine hundred thirty three act case the bottom line is that the district court simply was not faithful to the governing language of the one nine hundred thirty three act instead it relied on a fatally flawed case out of the district through the elements of the claim and tell us how they are satisfied here so under the one nine hundred thirty three x case there are two claims one is under section eleven a statutory liability as an underwriter the other is statutory liability as a seller under se twelve if we take the section eleven thing as an example we have to have a we have to have the sale of security involved it to have the sale of a security though the rest be a misrepresentation of the registration statements and that the what is involved in these claims is the enron employees stock option and under the statutory definition of security and of the thirty three act and option on stock a stock option is statutorily defined to be a security it's right in the statute itself so there it should be no question that there is a security involved the district court even cited in the opinion and then went on to sort of talk its way out of it of the question of sale this is where the fatally f conclusions come from from a relying on the golf in versus syndicate case out of the district of new jersey from one thousand nine hundred nine there was a confusion of context in that case so sending case involved stock yes well and so actually very important for his appeal and i think the target of for this appeal are the f c c is actions against google inc a two thousand and five enforcement action against google inc and then just earlier this year just several months ago  he took another force with action against a company called credit card aig and both of these in force with actions against these companies found that the companies violated the one nine hundred thirty three act section five by selling unregistered securities interest in a benefit plan is an investment contract because that's one of those terms under the statute that says for definition of security then you know how we the nine hundred eighty release there are looking at this question of does this about noncontributory you know mandatory employment benefit plans were was somewhat incomplete and it went on to define what constitutes a voluntary contributory point in and it said it's a plan where an employee has at any point in time a decision to make an investment decision to make the very nature of an employee stock option there's an investment decision to make there's the investment decision whether to exercise the option and then whether to invest your funds in exercising in acquiring the underlying stocks but there were there was a committee was there not if that's the right word to use that decided which employees receive the benefit so iran had a compensation committee that made the grant determinations as credit and then u b s was the one who contract and with enron to actually execute the entire distribution process u b s was the one who notified enron employees of the grant o option so therefore u b s was the one who distributed the grant of a stock option u b s maintained all of the records regarding grants regarding exercise runs at the met with the point of the question was that the which i didn't make clear enough the individual employee had no choice as to whether he or she was to be among the group that was chosen to receive the option that is correct under the ninety one release by the f c c they specifically say this is what defines a contributory voluntary play it is whether or not the employer at any point in time has an investment decision to make and you know to invest their funds and just the very nature of an employee stock option requires the exercise of a decision or requires a decision of whether or not to exercise the stock option investing your money and buying the underlying stock so appellants take the position that because of that investment decision that's inherent in a stock option it is under the one nine hundred eighty one released by the f c c a voluntary contributory point as defined by the f c c which is entitle to deference and again the issue here is whether the no sale doctrine applies and if we look at google inc and we look at credit karm we know definitively the f c c in these regulatory enforcement actions against these companies are making the determination that the no sale doctrine does not apply to the granting of employee stock options because if that were the case these and forstmann actions would be moved there would be any need for me they specifically determine that the grant of an employee stock option under the stock option plan is the offer and sale of a secured there's no question about it look at those decisions that's what they say and so we have a security because a stock option is defined by the statute to be a security we have the sale of a security by the granting of a stock option google a credit card and your position is simply a employee that's correct that's correct these were the same scenario these were compensatory stock options so in exchange for the services that the employee is providing us if we think about that for value aspect of sale  compensatory stock options they have built into them under the i r s code of vesting schedule the the services of the employee is a is a requirements of receiving the stock option and having it mature to the point where you could exercise it so we  judge harming said that's not an issue in the decision these are admittedly false registration statements and prospectuses and so then we have the factual questions of whether u b s as an underwriter under section eleven a cellar under section twelve and here the interested in a respect trust is a security because it's an investment contract that in cendant the judge actually misquotes those cases exchanging the word ownership plan for option plan and makes those cases say something that they never said and in this case the district court looked at this in a case and set up a wall clearly looking at the sin in case of a no sale doctrine applies in this to this context therefore different context is how the dish report wound up where it did say that there is no sale there is no purchaser there is no underwriter there is no seller at all depending upon seeing that being correct and as we demonstrate in the brief sinan is objective really wrong and it needs to be corrected it misquotes the cases it relies on and causes confusion in the context of an employee stock option plan statutory faithfulness is the correction because if you look at the statute itself it determines the issue that court was looking at the thirty four act but it applies equally here in the thirty three out of context the correction is faithfulness to the statu and that's what we asked this court to do so again we have the security we have a sale we have misrepresentations of the registration statements u b s as an underwriter as the complaint alleges adequately because of this contractual relationship that it had with iran u b s took on the responsibility of having its hand in every aspect of the distribution of these employee stock options u b s is the only company that had it's had a role with every aspect of the employee stock option play what's the compensation committee made the determination of who was going to receive the grants u b s notify them u b s kept all the paperwork u b s maintain the internet site where they would interact with employees could interact and so i mean how many options do i have when do they vest if they want to exercise they would call u b s a u b s maintained the accounts of enron stock if employee were to disarm and exercise  stock option they would do that with u b s and u b s would have the stock that would then be transferred to the employees account it was u b s who is at every stage of this distribution process and that is the definition of underwriter when you look at the statutory definition when you look at the case law u b s was an indispensable party to this distribution without u b s this distribution would have taken place at least according to the terms of the contract u b s was the one who stood between  employees and the securities that were being issued to them and they had and u b s had responsibilities under the statute to ensure that the information that the employees received regarding that these securities was accurate was full and that's why the statute places responsibility statutory liability on them for these false statements  briefly i have just over a minute left i want to say to you that obviously the appellant's can see nothing regarding the one nine hundred thirty four act case time today's limited and so i would refer the court to the papers of the briefings on the one nine hundred thirty for i to amend i mean this procedural history i think we can agree is is pretty unique and to have the stay for as i don't understand this eight month delay after the  well so if we put ourselves back in that time frame we have andy fastow being deposed in the fall of of two thousand and six this was also one of the court's docket order when all of the expert discovery was taking place so the fall of two thousand and six was full of of allegations that came out of fastow's deposition but also a significant amount of information that came out of the expert depositions positions relating to science or to duty one of u b s is experts patricia chadwick testified that if it's the situation where u b s apposite a company in the position of u b s becomes aware of fraud at issue or that they actually have an obligation to blow the whistle to the f c c and so some of these questions about vs have that would give rise to a duty to disclose are addressed by the expert depositions and so in those months all of that discovery was taking place and we were seeking to incorporate all of that into the two thousand and eighteen judge graves on the panel this court dealt with those issues the complaint is exactly the same this court dealt with the issue of of whether lead to a man should be with the judge harm her discretion not granting the two men in this court focused on the point that judge smith did which is that there were many months after mr fastow as deposition and plaintiff sat on their hands in fact mr fastow's deposition he didn't say anything about s knowing about the fraud in enron and in any event the plaintiffs waited five years to even seek to follow yet another amended complaint let me focus on the thirty three act claim which is at least the new claim in this case the claim is about the grant of an exercised enron options that were provided without any cash consideration and all paine webber did was provide certain record keeping  assistance to enron and also facilitated the exercise of the option the folks that they're representing are just people who got the grants that said they never exercised the grants and this is an unprecedented theory it's not one that any court  ever adopted and it fails for four separate reasons the first one is a when you focused on junk as you can about them they don't satisfy or they run right in right directly into the the well established no sale rule the purposes of the securities act and that's also consistent with what courts of how the other side talked about the cendant case which is from new jersey but there's a fiduciary dress trust case in the southern district there's a case to go with west airlines in minnesota there's a case from learning or court decisions but that consent or didn't mention the no sale option and it dealt with the context of google being a pre i p o country company and someone individually barking bargaining for options  connection with going to work for google as opposed to a situation where someone is working for a company and gets options and those options are granted by the board and there's no dispute about that in this case  in addition under section eleven you can only bring a claim against an underwriter or someone who offers or sells securities u b s was not by any definition here an underwriter of securities the record keeping function  performed is not the distribution of options all it did was facilitate the exercise of the options enron deposited shares in a u b s account and if some want to exercise that those shares u b s set up an account for that person they could get the shares when they exercise the options and then diversify their portfolio but again the board was the was that was the entity that granted the options but it was you was u b s compensated in the same manner that underwriter normally happy upon what was the company was a contract that provided that you got a certain amount of money from running the running the exercise part of this played the big benefit for u b s from doing this was that folks who were enron employees had accounts at u b s and then would do trades out of the enron shares and to you know apple or were some other or some of what apple would have been the show that would've bought back then but and on or something else like that or you could have but you could've gone excuse me into exxon or you know bank of america or some other stock that was where u b s made money from doing this it was really something where they were not doing wanted an underwriter traditionally does which is due diligence there's no registration statement that says u b s was the underwriter of these securities the only registration statement was a form s eight which is a particular form that you used in the context of employee stock options the normal underwriter does what's called the s one when you sell shares to the public that's not what went on here s certainly was not the nominated or even referenced in what in the document that the other side is claiming was the registration statement u b s didn't didn't own the options normally when you are in underwriting buy the shares from the from the issuer and then you distribute them in some the shares here the options were not transferable but u b s never took title to the options they never bought the options so they didn't perform any of the normal functions that one  tributes to an underwriter you also you know so first of all the knows that the other side runs up against the no sale doctrine number two they run up against the fact that u b s was not an underwriter as understood for purposes of section eleven and was not a seller for purposes of section twelve then they have a problem of you need a false statement in a registration or prospectus that you contribute to the underwriter or to the seller of the securities and again these form s eight which is the document that they're focused on didn't register or offer options you don't register offer options you register stock in the form as eight simply register the stock that would ultimately be exchanged for the options auctions don't as a matter of law and needs to be registered now the last point so you've got again no sale doctrine not an underwriter seller there's no put i've not made an investment and you're getting something without putting any cash into it and that's why the no sell will bars the claim that they're seeking to bring here and that's why the f c c in courts have repeatedly held that when an employee gets an option they don't have a claim against their employer now plaintiffs here would like to go one step further and have you also rise a claim against a bank that essentially just set up accounts so people could trade the  shares that they got in the exercise the option to end diversify their portfolio and get you know get exxon stock or some other company i b m stock and certainly the e b s was not performing the function of an underwriter as anyone would define that some sort of cash consideration and there was no cash consideration here and the f c c in courts of all held that the no sale doctrine which is well established you know rejects the theory they're putting forward the last problem that the other side has is they have no thirty three act damages because enron granted the options for no cash consideration the plaintiffs didn't pay for the options and under section eleven damages are calculated based on the difference between the amount you pay for the securities and what the value was later but here you can pay anything for them so you have no damages under section twelve which is the other theory they're operating under you look you can recover for the consideration paid first as you know what it was worth at some date down the road but in both instances here section eleven section twelve the employees didn't pay anything for these options they worked there's no question in order to get them the courts and how that that is not a form of consideration that qualifies as being cash consideration is required for section eleven and so non cash services are not a valid form of thirty three act thank you so if i may be the issue of the confusion of context is the fact that the district court win into this determination of whether or not a stock option qualifies as a security because it's an investment contract that's what daniels talks about that's what how he talks about that's what the nine hundred eighty release talks about that's not the the right context and employee stock option is a security because the definition of security under the a security and so that's what we talk about when we talk about statutory faithfulness the statute itself defines a stock option to be a security with regard to this no sale doctrine the google inc situation the credit karma situation was not the situation of individual employees negotiating for stock options these were all employee benefit plans to go when they you know when they've were found to have violated section five it was because they had issued more than eighty million dollars of employee stock options credit card is the same thing they these are private companies yes but it's the it's the same general rule a security must either be registered or exempt from registration and as private companies in a potential registration the rule seven zero warning but they didn't meet the premiers of that rule of that exemption and so they either had to register the security or it had to be exempt for some other reason the f c c found that there was no viable exemption from registration the stock options themselves had to be registered and the way you register stock option as mr jefferson is using a form s a registration statement on the face of that registration statement it registration statement every interest in the play and in the employee benefit plan that is a security and in determining the amount of the securities are deemed registered under the form essayed registration statement so as a matter of law as a matter of rule for sixteen c the stock options are registered under the form s a registration statement that should even be a question as far as the damages are concerned i would say two things about that first is that this is a rule eight pleading stand or we are out of motion to dismiss stage we have adequately pled damages as a as a first matter as a second matter talking about those experts depositions in reports that were done again where  really odd situation where we've completed discovery we're ready for trial and the case is dismissed on a motion to dismiss so it's a little pleading standard so it's a little bit odd in that sense but we have expert reports we have expert depositions that that quantify the damages in these cases it's based on this notion of a black shuls model the value of employee stock options it's a whole area of expertise and damage calculation so we've adequately played it but just so you know we don't end up back on a motion for summary judgment because there's no damages we have evidence of the damages that have been produced in the case i would also say that a section eleven underwriter the case law makes clear that anyone who performs a substantial function in a distribution is deemed an underwriter that's s c c versus chinese consulate but benevolent corp out of the second circuit in one nine hundred forty one well established law that who is an underwriter under the statute is a broad category and it encompasses everyone who who takes a part of the distribution process yes on as as you know if you take that part of the if you know if you become a necessary part of the distribution process then you're an underwriter and in this case u b s contracted with enron to perform the entire distribution process to its employees and the reason it did it was not for that administrative fee but it was for that opportunity to have every enron employee become a u b s client if you think about the number of enron employees that were granted enron stock options and they had to go to u b s they had to establish a u b s account when they had a deal with u b s when they exercised that option they got the cash they were already had an account at u b s u b s could just facilitate their additional transactions that they wanted to do it was a gold mine u b s knew what it was doing when it put itself into this position and it did it for its own financial gain which also was one of those key components for sellers so i see that amount of time thank you very much mr bush you're ok she's under submission