morning runners may it please the court deborah clark weintraub on behalf of the appellant retirement board of the policeman's annuity and benefit fund of chicago the district court's decision dismissing the action must be reversed because it ignored and misapplied a controlling precedent of this court in concluding that none of the alleged misrepresentations and omissions were material and that the complaint did not allege sufficient facts to raise the requisite strong in enter and let me begin with why the misstatements and omissions were undisputably material f x c m told investors that it had a business model that was distinct from its competitors its stated that its agency point there is a question of whether viewers statement that they don't usually go after customers is not true because in fact they had a contract not to but the whole previous thing seems to me to be a fairly clear statement of what was going on but some risk bit is normal leave there wasn't there but there is vis additional risk here there are two sets of transactions and i think i always have to seps step back and remember that they're supposed to be hedges against each other they're supposed to be but they're not and they're not because they are they reduce that kind of know if there's exposed the margins are the same and the likelihood of meeting the margins are the same and all these other factors are the same doesn't that in a perfect world mean a perfect hedge not in this case because looking about this case i'm the difference between the margins between the between the buyer or the that the two different sides of the hedge and and that kind of thing those are that's a different risk and wasn't that risk accounted it clearly was the counter party on those trades and it was exposed to market missed because it did not have a hedge with its customers because the customers were not liable for any amount any of them this we're now debating w everybody as might be but respectfully iran are we disagree that this debate over whether or not it's market risk or credit risk as described in f x iams f x cm's own filings is immaterial to this case this is really the crux of this case after the events of january two thousand and fifteen market analysts came out and said that they did not appreciate the nature and level of risk that f x c m was taking everybody was surprised everybody was shot everybody was and yet you're trying to say that f x yeah i was surprised of this risk but whether or not anyone everyone was shocked at the timing of the s and b s announcement is irrelevant the relevant question is what was the level and magnitude of risk that existed and the level and magnitude of risk that existed with respect to  highly leveraged on hedge position two point two billion dollar position in this highly volatile currency pair has existed at all i want to down to that proposition you're saying the risk that they should have taken is that there is this huge amount of investment in this particular currency pair because when i look at the two thousand twenty thirteen ten k it does seem to rather clearly say that in situations of extreme volatility it may be that we will be unable to close out customer positions and we don't have a practice of going against the customers and that sort of discloses exactly what happened here but it adds am i missing it absolutely does not your honor because was a veer because we have the usual practice of not going after when in fact they had a contract that seems to be your strongest or human but that isn't the one you're making your honor we are making that argument but also i think you have to look at what f x c m said about credit risk which is the risk that your honour's are focused on right now and what they said about it is that it was minimal that it had historically been significant and that it  historically been significant we allege in the complaint the incidences involving the russian ruble and the japanese yen where f x e m had suffered such significant losses that the and f a a had put them on a watch where they had to report their  regulatory capital to the f a a on a weekly basis so this notion that this was something that didn't happen and was a rare occurrence was not actually true well so when there was one when the when the pair was p originally there was a percent shift in the price and how with how would they have known that this was going to be double that at that based upon that experience but your honor there's no evidence in the record as to what the position what when it would occur how bad it would be given their two point two billion dollar position a shift in a magnitude of eight percent when it would have had largely the same result they would have suffered a loss as to which they did not have sufficient cash or liquid assets to cover that's the that's the point and that's because the lit the risk again was of such magnitude and nobody understood that good morning your honor is me please the court we submitted this court on which what are your adversaries arguing is that the normal play of a disclosures the normal set of disclosures that you've made here i have to be viewed in the light of the exposure of the two point two billion and that that's what changes everything so when she addressed that part yes your honor the two point two billion is probably maybe a quarter of the total close to eight billion that that axiom had in positions that customers had in positions right and it's no doubt that it was a big proportion because it was a very stable peg it was a very stable pair because of the peg so a lot of investors invested in that pairing the only reason that there's any issue with the risk is if is the magnitude is if liquidity was not there to allow f x e m to close up customer positions it said repeatedly from its i p o prospectus in every ten k forward that if there was a situation of extreme market volatility any lack of you said that there is a risk because we do not go after usually customers but he'd fact you wouldn't go after customers because you had a contract that you would not so is it reckless enough in a situation where reason personal gain civil we can meet the theatre questions yes your honor an excellent question but let me take you back a little bit it is not a misstatement because what the company said about its general policy is true the contracts were online on the website the contract have exceptions a forced mature exception in particular which the company used in this case because it was a black swan event it recovered some ten million dollars from some cops to ribs but it makes a choice and a lot of the customers are overseas retail customers so it has a general policy of not going after customers but there is an exception and it's in the contract and it was used in this case because the claim has because this is all market risk and therefore the saying that there was no market risk in the market risk was eliminated by the nature of that relationship is misleading you out of what i would say that point them to their own complaint their own complaint makes clear at paragraph seven among other paragraphs when they say well you have exposure to the banks they always had the caviar comment to the extent losses on these trays exceeded the nominal amounts of margin collateral that x f x e n required of its retail customers it's sensually they're saying the same thing there's no doubt that epic c m does back to back trades and hedges and there they're flat they're neutral to any price movement but if they can't get their customers out because of their margin watch feature in their seat belt technology if there's a lack of liquidity in the market they can't close out those losses they're going to eat those losses and that's the risk that they put in all of their disclosures and there's really no difference between what the plaintiffs are saying if you read the complaint they acknowledge yes you might have that risk to the extent you have losses that you can't mitigate and that's exactly what we say in all of our disclosures it's the flip side of the same coin your adversary's arguments essentially especially with regard to recklessness that given that this was a temporary peg and there might be no basis to say that you knew it was eminent but by size alone there just should have been more disclosure here and it was reckless not to let investors know how vulnerable the company was to this position but you write about what i would say there you could look at companies point of view it had technology margin watch features that looked at the accounts three times per second and over from the time the company went public in two thousand and ten until twenty fifteen the few times they had negative equity losses total two  million and in the twenty thirteen ten k which is referenced in the complaint they actually indicate that in two thousand and thirteen they had only one point three million of negative negative equity and in twenty twelve it was three hundred thousand dollars fair argument is sen was could be dramatic and that there's nothing in this all set of statements that informs an investor of the size of that risk and the very fact that history recent is made a minor risk adds to the missing the bit what is going on here is that your client knew the could be a catastrophe and that this whole statement and says as essentially a catastrophe is not likely we've done all these things which are yes and i think that's of the thrust of their or i believe that's right and i would say in response to your honor that there is nothing pled in the second amount of complaint or in any of the exhibits that would give an inference that the company had any inkling that there could be a forty percent drop in the price in a matter of seconds and that liquidity would be unavailable for forty minutes i mean it was it was a complete dysfunction of the foreign exchange your saying that maybe the clients were surprised by this risk but so were you absolutely sure of it never happened in the foreign exchange market ever the biggest events were when the peg was put in in two thousand and eleven and your honor notice there was an eight or nine percent price movement and with the russian ruble it was a smaller price movement i would say in response your honor is one hundred million dollars in losses that my client suffered clearly indicates the inference that he did not see any catastrophic loss like this no rational person bet of the wrong is no doubt about that right but if you go to the complaint i mean given the company's history of performance the history of the foreign exchange market and the relatively soft price movements the company was completely kompany can handle the situations and it had its disaster warning from the i p o forward saying if there is a catastrophic movement if there is a suspension of liquidity we could suffer losses i mean that and i think your honor mentioned that is exactly what happened here this is not a matter of what the securities laws are not insurance and on investor insurance there is no fraud here and judge would the second time around when we were up here for the first time the plaintiffs were saying well we have all this evidence from the c f t c we need to get in front of the judge well they did and judge would looked at it and not only found no see enter again found no material misstatements and at the risk disclosures covered everything that happened here and we submit that is exactly right and she should be a front of a panel that sent it work or bringing potentially bringing in that evidence to see what it would show right and judge would should be affirmed by this court thank you your hon just a couple points and then mr never may have suffered a loss and you're honest but he suffered losses fully aware of what the file of axiom was unlike my client and other investors in the company and i think we have to step back here for a moment to remember we are here on a motion to dismiss and the issues before the court are whether or not judge wood was correct and finding that the alleged misstatements and omissions were immaterial as a matter of law that no reasonable investor could have been misled and again i go back to the point that the securities analysts who commented after the events of january twenty fifth indicated that they had not appreciated from the company's risk disclosure the nature and type of risk and the level of risk that affect c m was taking and addition with respect to this force majeure issue in the contract that is nowhere in the record so that is a factor well argument outside the record before this court and should not clearly applied the incorrect standard the district court did not consider whether or not the recklessness standard had been met it is clear that defendant may have was in possession of facts that undermined the veracity of  statements he was making to the market he clearly knew that the company was exposed to market less risk he clearly knew that even if you want to call it credit risk that risk was very material the two point two billion dollars position he clearly knew the size of the position he knew it was a volatile pair he knew that the cap would be lifted lifted eventually and he knew when that happened that would be a huge move that the price of the franc which had been artificially kept for years was going to move and it was going to move big he made it out of known precisely when it would occur and how much the move was but he knew that f x c m sitting there with a two point two billion position that was not hedged was going to suffer a catastrophic loss when that occurred if f x e m was still holding the bag and he may have wanted to take that risk but he didn't have the right to mislead investors with respect to it and we respectfully submit the decision of the district court should