extremely important one this is a case about silent fraud and how this court rules will determine whether securities firms like u b s can escape section ten b liability to their own retail brokerage clients simply by maintaining a code of silence the trial court dismissed the appellate section to be claim on the basis of three erroneous file claims there is free from those three findings or what this appeal is about the first two relate to the deceptive conduct element the section ten b claim the third relates to science or element so the first finding concerns u b s is duty of disclosure the second finding concerns the partnership for the joint venture relationship that exists between the u b s defendants and the third finding concerns u b s is extreme departure from the industry standard that applied in this context on them to address each one of these three in turn add up to beginning with the duty of disclosures the parties agreed that deceptive conduct for the purposes clear the parties also agree that the rules and regulations of the security industries unique self regulatory scheme govern the relationship between u b s and the plaintiffs or appellants in this matter so for example or example the parties agree that the disclosure rules of the n y s e and of the former n a s d govern the relationship that u b s had with its retail brokerage points the parties also agree that these rules obligated u b s to act in certain ways with respect to its retail brokerage clients what led the trial court to its error was its understanding that u b s could commit silent fraud if and only if u b s owed the plaintiffs a comprehensive s is duty to disclose must be quote sufficiently extensive to require u b s to act only in the investors self interest in quote this is not and this is and this never has been the law regarding silent fraud under section to be the case is regarding non disclosure speak in terms of a duty to disclose they could have spoken in terms of the fiduciary duty but they do not they speak in terms of the duty to disclose and so the question is you have to show there are some an entity by that name that has a definite legal corporate entity and for it i can tell there is not you have  enron which was doing business with the other two entities so  we're i'm about going to be as i maybe i don't know by golly that you have to focus on paine webber which is the entity that dealt with took orders and barks stock for your disclosure or the joint venture relationships because both of these are required for the deceptive conduct elements so if i made about the joint venture relationship the parties have alleged and that there is that u b s is a legal try to do that well and with respect to the trial court this is not an alter ego claim the plaintiffs have never once considered this or allege that this is an alter ego claim we are not attempting to disregard the the corporate fiction and peers  corporate veil and it's unfortunate that after fourteen years we were never once afforded a live audience with the trial court to discuss this matter before complaint was dismissed because u b s his own public admissions and their own s e c filings set out exactly how their relationship is is established they have these a number of different u b s entities coming together to form what they call themselves in their own public filings that admission that they have to sign off of under penalty of a felony they have and they did in public records that they come together and that they operate as one entity called the u b s or the u b s group they have a number of boards and committees that oversee the sharing of resources and in various things within these entities so they have managing this one integrated group that they call u b s their own language ever argued a joint venture they did not ever refer to it as a joint venture but they are these are delaware entity's at least u b s financial services and u b s securities and so under analysis and a delaware law regarding joint venture it meets the elements there is this idea of a defacto joint venture if you come together and you x and you do the things that a joint venture does you are a joint venture de facto by a matter of law and so they had one corporate center they have heard of or that venture principle a list of the elements of a common purpose a right of control proprietary interest in the business sharing in the profits sharing in the losses if there are any and they have as i said members a show that plaintiffs came back later and asked for leave to amend this is one of the elements that they sought to expand by incorporating yes i forget how many pages it is but it's like twenty well maybe not that much put let's say in excess of ten pages of all of their public filing information that sets out the different members of the board the fact that there's this group executive board group managing board group risk committee group president group chief in it that's on the record now so that is in the the amended complaint that  and so when you look at their financial statements and how they allocate of profits and losses amongst the different entities there there is that and there's also we incorporated testimony from the employees and talk about how  experience one another's companies or how they offer their resources across in cities most of the employees don't even know who they work for they don't know who their paycheck is and they would say well you know it's actually just direct deposit i don't know what u b s it is the i work for  a week later plaintiffs filed its their motion for leave to amend and and then about a month later we not having heard anything from the court we were kind of expecting i mean obviously the court had a lot of work to do with regard to the newbie in the matter that was said back to her and so you know patience was in order and not having heard anything about how our case was going to proceed without a motion for a scheduling order on september twentieth two thousand and eleven and  hear anything we file a motion for a joint status report that was denied we then funneled shortly after that a motion to perpetuate testimony because frankly our experts are getting very old after that  now another year goes by which which was granted and we were able to perpetuate the testimony of some of our experts you know and that's one of the unique things about this case is fact discovery it's complete expert discoveries complete you know where we were dismissed on a motion to dismiss i mean a failure to say that you know it will be six motion which usually is the beginning of a case and here we are now at the end of the case and it frankly we're ready for trial we are ready to go and and one of the things that i would say amendment is the second in a complaint that was requested has everything in there every piece of evidence is footnoted i mean it is the case and from our perspective why if you're going to dismiss plain don't you all of the allegations concerning the joint venture as the law in there has the testimony relevant to that issue from the u b this employees whose depositions were taken a one of the big reasons why plaintiff felt like they needed to him in their complaint you know first of all after the motion to dismiss the first in the complaint comes back and denies essentially everything that u b s has already admitted in its public filings so we say ok what we have an issue here that we need to address further but more importantly than that is the second oh yes quite subsequent to the filing of the first american plane the first american plane was in august fast out was you didn't file into the record i'm sorry in falling into the record as part of your motion the second complaint deposition and now nobody in the second even playing we quote extensively in reference his testimony specifically the testimony where he talked about how all of the conversations that he had with the other banks he had the same conversations s investment banker relationship banker and others concerning of enron's financial needs and shortcomings in the kinds of track transactions that they would do in order to fill those holes and i just want to say before twenty seconds left that that those transactions this is not a scheme liability case those transactions are in the complaint for purposes of showing that u b s knew what we say they knew and that they had material information that they were under a duty to disclose to their clients as they were purchasing enron debt securities which is exactly the opposite of what u b s was doing a reserve the remainder of t go down a road no court has ever gone down before these are three separate entities they did not plead in their complaint anything about piercing the corporate veil of it's important to remember that the plaintiffs took forty depositions in this case before they filed the complaint in august of two thousand and eight two thousand and six and then they waited literally five years to seek leave to file an amended complaint the only thing that happened in that was pretty much within a year within a month after they filed the there there were a medical place which is the operative complaint here was they took the testimony of mr fastow was enron c f o and he said and i urged the court to look at did anyone at u b s paine webber know about the accounting fraud at enron absolutely not there's no allegation to that effect is there any allegation that anyone that u b s warburg the investment banking side of u b s knew about the accounting fraud no there isn't not any particular i's delegation sufficient to satisfy of the privates curious litigation reform and what the plaintiffs say and they speculate based on some transactions that u b s engaged in u b s was not a big player at enron it did an equity forward transaction before the merger of u b s a g and paine webber and then some bond offerings where they were not the lead underwriter and then they had three percent of a credit facility now from that they claim c regulation u b s paine webber's at the other side it would have been illegal and anybody u b s warburg provided nonpublic information to the retail side of the banks and that's another fact that the other side just completely ignores now the supreme court in the janice case recognized the need to look at the separate forms and in that case it had to do with it had to do with a mutual fund the genesis mutual fund and its investment advisor and see if you could just lump them together as two one which is what the plaintiffs would like to do they'd like to treat these three separate businesses as one without pleading any reason why other than saying well the bank says it it's an integrated firm of every major financial institution in the in america in the world up many of the leading ones have a brokerage firm a bank and a retail function and what these folks are saying is that if there's some information somewhere in it in a bank and u b s had sixty thousand employees that information needs to be told to the brokers when they're selling securities now another problem with their case correct if they know that one and that they're selling  someone something else but if they know something bad about the stock the other two entities are selling why wouldn't they owed duty to their client in this case there's no allegation whatsoever that anyone  knew about accounting fraud at emory and they speculate that they did based on doing really minor roles in transactions number two had they known whether they could have gone over the chinese wall or told on the broker said i don't know the answer that question i think maybe what you just said that they could my understanding is that if you have nonpublic information about an issue or and this is on the banking side they can go and tell it to the retail folks because that would be trading on that would be going over the chinese wall that would protect them but the other thing your honor as they took in this case forty depositions and so they examined all these people they got all the documents this is not a case where it's an unusual case because of the way that the original regents case and then the supreme court case sort of slut we were litigating and they were litigating a scheme liability case and then ultimately the supreme court's that didn't didn't work so then they wanted to twist it into this new theory of some integrated financial services company but in any event they don't least it's important to recognize the plaintiff in this case had a non discretionary account u b s meaning that the plaintiffs is two of them made the decision to buy the enron notes when they did in those enron notes as they in the record were twelve percent you know they were risky it's curious but they made the decisions themselves these were not in a discretionary account and when you're in a non discretionary account the martinez and romano case as well as cases from the tenth circuit the eleventh circuit and also texas courts all make it clear that the obligation of the broker is limited to executing the investors order the broker does not have a duty to disclose the break broker does not have a fiduciary relationship with its customer so this is not a case like hoot where there is based on that now or circumstance of that case the broker has a duty to disclose anything now there's no allegation here that the broker who of these particular of folks knew anything knew anything about the enron fraud and they don't allege that so that is another flaw in this case and it would a massive expansion of section ten b at the the other folks say well you know the broker doesn't act fairly or doesn't follow standards of the profession or doesn't follow the s r o rules well that's not ten b this is not a case where they are claiming that these were not suitable investments for these plain were not in any s t arbitration or if in your arbitration they could have brought something like that they didn't do that they're bringing a ten be fraud claim and in a temporary fraud claim you've got to plead fraud and the problem is number one there was no to be relevant in some way have never recognized the cars of action that's correct your honor the miley case which is six thirty seven fed second at three thirty three and also the jali jolly case nine zero four fed second nine ninety three securities fraud case i think the reason we're in the position that we are here is because as i mentioned before they originally wanted to plead this case as a scheme liability case and then when the supreme court and this court indication runners from earlier with the regions case said no you couldn't have this kind of scheme liability then they tried to switch to this theory of somehow well there's one giant investment bank john bank integrated bank with an investment bank a broker and then a commercial bank which is the u b s agency and they all should be lumped together without pleading any facts that the corporate veil should be pierced in this case at all they haven't played anything other than you know citing statements particular way that anyone from u b s knew about the enron fraud that's sort of the that's of the pretext of their complaint and if you look at the transactions again there were two equity forward transactions where  where enron was essentially looking to hedge its risk on stock options of its employees so that basically u b s promised to sell enron its own stock at a certain price and in fact the stock went up higher and so u b s owed enron money  called yosemite those are transactions where u b s was not the lead underwriter u b s they were in the case of osprey there was a public one forty four a private placement transaction not a secret transaction yosemite u b s was not the lead banker it was part of a group of six banks they don't allege that u b s learned about the enron fraud in connection with those transactions and then u b s agee the swiss banking parent again three percent of  eight hundred million of a six hundred million dollars line of credit that i don't even think was actually exercised for something called the next so on the basis of all of that they still don't have the particularized allegation that anyone at u bankers including u b s things like funds flows and debt and sources of income and those are things that bankers normally discuss with clients all the time and that's different than knowing about accounting fraud so again they've got a lead in the first instance that someone at u b s warburg or somebody at u b s agency knew about the accounting fraud they've got it show that these entities should be should be treated as one even though they haven't pled but there's a big difference between should have known how funds should have been used and actually knowing about it and the the other side doesn't identify a single employee at u b s warburg or u b s agency who knew about the fraud much less provide particularized allegations that that person knew about the fraud and in fact what they're trying to do is contra to this court's decision in southland where this court said you've got to have a particular person who knows about the fraud you've got to plead with us to that person  sort of taking steps of information and saying well as in sort of the giant mosaic they should have known about the fraud but again i go back to what i said separate entities and then and then you fall back to the fact that in the the r customer that that is not the there's no fiduciary obligation and in fact is right and in fact in the in fact in the region's case your honor in that case and in the context of looking at you which is the case they rely upon in a footnote concurring opinion agreed with the majority that that they had an established that that the ute exception which is a narrow one should apply and it under the series that these folks are advocating it would literally it's a huge unique case that would literally up and the way that banks and securities firms operate in the united states because there's absolutely you know all of them do banking business they do they do they do investment banking business and they and and they have retail arms and this idea that you know you have to look at the giant information in the entire bank and then lump it all together and that all has to be disclosed to retail customers will nondiscretionary or trading in non broker knew something bad you certainly could bring in any as they want any as the arbitration or now finra arbitration against their broker you might be able to bring a ten b five action against the bank if the if the broker made a statement to you that was false but these folks don't allege that the broker that they were dealing with made any false statement to them at all so it's not like the they say well the broker said there's nothing that does that enron is a great company they don't there's no accounting issues they say that somebody else at u b s across a chinese wall may have known something and they should've told the broker who then should've told it to you and that's not a rule of law or that's ever been accepted by any court that there's some obligation like that but again the pretext for the obligation is that somebody at u b s warburg or somebody at u b s a g knew something about the enron fraud and they don't plead that after literally taking forty depositions there's if the court has no further questions let me let me just what res one thing on the question of leave to amend now the court doesn't need to reach that issue if you've dismissed the case as we believe you should but here number one the notice of case the notice of appeal in this case was limited to judge harmon's decision that's on appeal on the motion to dismiss the leave to appeal issue was decided that there was a deadline for filing motions to leave for leave to appeal in this case on aug eighteenth two thousand and six the plaintiffs waited five years until august two thousand and eleven to seek leave to appeal the only thing that happened between when they file their amended complaint and then their next amended complaint was to fast out the position that was the only thing the stone ridge decision by the supreme court came down in two thousand and eight that waited two and a half years even after that decision to seek leave to amend and and so it was late but on terms of the actual notice of appeal that was filed in this case they don't they don't identify the march two thousand and twelve order of judge harmon denying them leave to amend in their notice of appeal which is at nine three three seven nine three three nine and so this court we believe doesn't have jurisdiction even to consider the issue of the amendment but in any i'm in any event what's in the amendment  with respect to mr fastow is mr fastow as i said before the nine hundred five six said he didn't recall talking about accounting or tax risks with u b s and and in any event allowing at this late date a brand new motion to dismiss what seventy three different people referenced it about you know events that go back to you know before the year two thousand you talk about i him that would be would be highly prejudicial to u b s and in any event they had to let information back in in august two thousand and six when they filed their amended complaint they had taken forty depositions plus done experts coverage so they had their they had their opportunity to make their best shot and now they're basically just coming in and saying you know we want to file a new complaint even though they waited literally five years after the deadline to to move to amend so it would be number one it's on terms of the amendment it's not referenced in the notice of appeal of the distance this decision which is a march two thousand and twelve that we're denying will leave to a man in their notice of appeal the they waited too long to file their motion for leave to appeal five years including two and a half after the storage decision there's no good explanation for their delay and the proposed amendment you know again the only new the only new fact is the deposition of mr fastow which doesn't help them and will be highly prejudicial to to the defendants to deal with a new complaint years later particularly  didn't you know she dealt with us you know we filed motions we the case went on and then you know and then and then she ruled on things and we obviously took a while to get the motion to dismiss decided but she don't have an obligation to give us oral argument on a motion to dismiss that i'm aware of gustus thank you i think one of the really important facts that's alleged and supported with the evidence is the fact that u b s eliminated four hundred million dollars of its financial risk to enron in the months reading leading up to it on the bankruptcy when the very few into tease out there that had such exposure to enron and went in on file bankruptcy didn't have exposure to enron and i think that's a very important part of the story an understanding that u b s very well knew the situation at enron a couple things to address is the legal restricted list this idea of a chinese wall you know the group credit risk department and a number of other group departments sat above all of these u b s legal entities as it was the one who was managing their resources managing how things would work the way that the law set and this sort of the standard in the industry is set up to handle these kinds of situations where you have knowledge of one side of your organisation and duties to disclose and the other side of the organization is through the industry standard of a legal restrictive honest and there's actually the expert depositions took place after the first in the complaint was filed and then actually u b s is own expert who testified after that filing testified that u b s had if it had knowledge of financial manipulations that in on that they actually had a duty to report this to the f c c but they regard this of that they have this industry standard of the legal restrictive list where you find out that you have material non public information that you can't disclose because you have a duty not to disclose to your corporate client and yet you have a duty to disclose to your retail brokerage clients or others you put the security on a legal restricted list you put the issuer on a legal restricted list it prevents you from trading in that security and it prevents you from publishing research relating to the securities that that's what they should have done so for the science or element of this claim that's what they should have done that's the industry standard but of course they didn't do that because if they didn't put iran on a legal restricted list they couldn't four hundred million dollars of financial risk but they failed so that's one of the reasons i think that supports the idea that they did have knowledge from these trains actually that of course that as i said there's pages and pages of of details regarding these transactions banker kimberly blue michael collins david kelly and house counsel there's a number of people and their roles are exploited in the complaint so it's just not true to say that plaintiffs have not alleged with specificity people who were involved and had this knowledge so rules played us have never contended that a violation of an s r o rules is itself a cause of action the case law in jolly is as mr a different discussed talks about how section twenty the reason why these as a rule rule violations are not themselves causes of action is because of the concern that they could be violated without the requisite state of mind and so players have been very clear that they are using the s r o rules simply for the element of deceptive conduct that they had a duty to disclose the failure to do that was itself deceptive conduct but recognizing the plate is still have to meet the science requirement of section ten b and we believe that we have done that the issues of ja capital southwind owens you know this is one of the unique things about this case it is not a statement case we are not pointing to a statement in saying that statement is the deceptive conduct it's a non disclosure case where there is no statement in violation of a duty to disclose and that completely changes the legal analysis of this case the cases like janus capital and southland and owens dealing with group leading in this idea specifically identifying who was the maker of the statements those cases deal with statements it you know cases where statements are the deceptive conduct and you need to make sure that the individual who you are tying to that statement had the requisite state of mind and so that is not this case at all to show that a person legal restrictive this that's the standard so then the question is is it it is it extreme departure from that standard definition it is an extreme departure from that standard for u b s not to have put enron on its legal restrictive list  purpose of the transactions in the in the complaint is to show the knowledge that u b s gain specific knowledge of enron's financial manipulation is ends with specificity of who at u b s was actually involved in those transactions and that's the list that i  runs and runs of u b s of enron transactions that u b s participated in not because of scheme liability but for knowledge and then involved in that was also the credit risk officers who were managing u b s is the entire