Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca2-14-03983/USCOURTS-ca2-14-03983-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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14-3983,09-4414-cv

Fezzani v. Bear, Stearns & Co., Inc.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

April Term, 2011

(Decided: January 30, 2015)

Docket No. 14-3983, 09-4414

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ON PETITION FOR REHEARING

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1 MOHAMMED FEZZANI, CIRENACA FOUNDATION, DR. VICTORIA BLANK, LESTER

2 BLANK, JAMES BAILEY, JANE BAILEY, BAYDEL LTD., MARGARET BURGESS,

3 PATRICK BURGESS, BOOTLESVILLE TRUST, AND ADAM CUNG,

4

5 Plaintiffs-Appellants,

6

7 v.

8

9 BEAR, STEARNS & CO. INC., BEAR STEARNS SECURITIES CORP., RICHARD

10 HARRITON, MORRIS WOLFSON, ARIELLE WOLFSON, ABRAHAM WOLFSON, TOVIE

11 WOLFSON, ANDERER ASSOCIATES, BOSTON PARTNERS, WOLFSON EQUITIES,

12 TURNER SCHARER, CHAN SASHA FOUNDATION, UNITED CONGREGATION

13 MESERAH, ISAAC DWECK, INDIVIDUALLY AND AS CUSTODIAN FOR NATHAN

14 DWECK, BARBARA DWECK, MORRIS I. DWECK, RALPH I. DWECK, JACK

15 DWECK, FAHNESTOCK & CO. INC., BARRY GESSER, MICHAEL REITER, AND

16 APOLLO EQUITIES,

17

18 Defendants-Appellees,

19

20 ARTHUR BRESSMAN, ANDREW BRESSMAN, RICHARD ACOSTA, GLENN O'HARE,

21 JOSEPH SCANNI, BRETT HIRSCH, GARVEY FOX, MATTHEW HIRSCH, RICHARD

22 SIMONE, CHARLES PLAIA, JOHN MCANDRIS, JACK WOLYNEZ, ROBERT

23 GILBERT, FIRST HANOVER SECURITIES, INC., BANQUE AUDI SUISSE

24 GENEVE, FOZIE FARKASH, RAWAI RAES, BASIL SHIBLAQ, IYAD SHIBLAQ,

25 KEN STOKES, MILLO DWECK, BEATRICE DWECK, RICHARD DWECK, ISAAC B.

26 DWECK, HANK DWECK, and DONALD & CO.,

27

28 Defendants.

29

30 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

31

Case 14-3983, Document 22, 01/30/2015, 1426740, Page1 of 16
1 B e f o r e: WINTER, CABRANES, and LOHIER, Circuit Judges.

2

3 Petition for panel rehearing or rehearing en banc of a

4 portion of this panel’s opinion and summary order dated May 7,

5 2013, which affirmed the district court’s dismissal of federal

6 securities law fraud claims against a clearing broker and

7 individual investors. 716 F.3d 18; 527 Fed. Appx. 89. The

8 petition for panel rehearing is denied.

9 Judge Lohier concurs in part and dissents in part in a

10 separate opinion.

11

12 Max Folkenflik, Folkenflik & McGerity, New

13 York, New York, for Plaintiffs-Appellants.

14

15 Kerry A. Dziubek and Michael D. Schissel,

16 Arnold & Porter LLP, New York, New York, for

17 Defendants-Appellees Bear, Stearns & Co. Inc.

18 and Bear, Stearns Securities Corp. (Now J.P.

19 Morgan Securities Inc. and J.P. Morgan

20 Clearing Corp.).

21

22 Howard Wilson and Scott A. Eggers, Proskauer

23 Rose LLP, New York, New York, for

24 Defendant-Appellee Richard Harriton.

25

26 Anne K. Small, Michael A. Coley, Jacob H.

27 Stillman, John W. Avery, and Jeffrey A.

28 Berger, for amicus curiae The Securities and

29 Exchange Commission, Washington, DC.

30

31 WINTER, Circuit Judge:

32

33 This opinion addresses petitions for rehearing by appellants

34 from the court’s summary order and from the opinion filed the

35 same day. It also addresses an amicus brief filed by the

36 Securities and Exchange Commission in support of the Petition for

2

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1 Rehearing from the panel opinion. Familiarity with the summary

2 order, the panel opinion, and the dissent from the panel opinion

3 is assumed. We deny appellants’ petitions.

4 I.

5 The petition for rehearing relating to the summary order

6 argues that this court’s decision in Levitt v. J.P. Morgan, 710

7 F.3d 454 (2d Cir. 2013), filed just before the summary order, is

8 inconsistent with that summary order with respect to the

9 complaint’s allegations of Bear Stearns’ liability as the

10 clearing broker for Baron’s fraud. We disagree. 

11 We begin by noting that the issue in Levitt was whether the

12 common issues with regard to the liability of clearing brokers

13 for the fraud or manipulation of introducing brokers so

14 predominated over individual issues as to justify certification

15 of a class. See Fed. R. Civ. P. 23(b)(3). That issue

16 necessarily caused a discussion of the caselaw governing such

17 liability. That discussion stated in part:

18 III. Duty of a Clearing Broker (Generally)

19 We have previously said that “a clearing

20 ‘agent [ ]’ is generally under no fiduciary

21 duty to the owners of the securities that

22 pass through its hands” . . . .

23

24 [D]istrict courts in this Circuit have

25 distinguished two categories of cases. 

26 First, in cases where a clearing broker was

27 simply providing normal clearing services,

28 district courts have declined to “impose [ ]

29 liability on the clearing broker for the

30 transgressions of the introducing broker.” 

31 Fezzani v. Bear, Stearns & Co., 592 F.Supp.2d

3

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1 410, 425-26 (S.D.N.Y. 2008). The district

2 courts have so held even if the clearing

3 broker was alleged to have known that the

4 introducing broker was committing fraud,

5 Fezzani, 592 F.Supp.2d at 425; even if the

6 clearing broker was alleged to have been

7 clearing sham trades for the introducing

8 broker . . . and even if the clearing broker

9 was alleged to have failed to enforce margin

10 requirements against the introducing broker

11 -- thereby allowing the introducing broker’s

12 fraud to continue -- in violation of Federal

13 Reserve and NYSE rules.

14

15 In the second, much more limited

16 category of cases, district courts have found

17 plaintiffs’ allegations to be adequate -- and

18 so have permitted claims to proceed -- where

19 a clearing broker is alleged effectively to

20 have shed its role as clearing broker and

21 assumed direct control of the introducing

22 firm’s operations and its manipulative

23 scheme. Thus, in Berwecky v. Bear, Stearns &

24 Co., 197 F.R.D. 65 (S.D.N.Y. 2000), the

25 district court granted class certification in

26 a suit brought by investors against clearing

27 broker Bear, Stearns for its role in the

28 introducing firm A.R. Baron & Company’s

29 (“Baron”) scheme to defraud investors. The

30 Berwecky plaintiffs allege that Bear Stearns

31 “asserted control over Baron’s trading

32 operations by, inter alia, placing Bear,

33 Stearns’ employees at Baron’s offices to

34 observe Baron’s trading activities, approving

35 or declining to execute certain trades,

36 imposing restrictions on Baron’s inventory,

37 and loaning funds to Baron.” Id. at 67. The

38 plaintiffs alleged that Bear Stearns asserted

39 control over Baron’s activities “in order to

40 keep A.R. Baron a viable concern while Bear,

41 Stearns . . . continued to reap the large

42 profits they received from their activities

43 with A.R. Baron.” Id. The district court

44 found the allegations that Bear Stearns

45 “control[led]” the implementation of the

46 scheme to manipulate the price of securities

47 sold by Baron sufficient to satisfy Rule

48 23(b)(3)’s predominance requirement. Id. at

4

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1 68-69.

2

3 Levitt, 710 F.3d at 465-67 (some internal citations omitted).

4 The petition argues that Levitt held that the allegations in

5 Berwecky were sufficient to state a claim for relief under Rule

6 12(b)(6) against a clearing broker. The petition further notes,

7 correctly, that the allegations in Berwecky that “[Bear Stearns]

8 asserted control over Baron’s trading operations by, inter alia,

9 placing Bear, Stearns’ employees at Baron’s offices to observe

10 Baron’s trading activities, approving or declining to execute

11 certain trades, imposing restrictions on Baron’s inventory and

12 loaning funds to Baron,” Berwecky, 197 F.R.D. at 67, are

13 substantially identical to those in the present case. The

14 complaint here alleges that “Bear Stearns assumed control over

15 and sent Bear employees to Baron to ‘enforce that control’” and

16 required that every trade ticket be checked and “reviewed every

17 order at this discretion [to] determine whether to execute the

18 trade.” Thus, because the pertinent factual allegations in the

19 present case and Berwecky are substantially identical, the

20 petition concludes that our affirmance by summary order resolved

21 the merits of the claim incorrectly. 

22 However, Levitt also cited the district court opinion in

23 Fezzani twice favorably, the very decision that our summary order

24 affirmed, and any seeming inconsistency evaporates once it is

25 recognized that Levitt’s discussion quoted above was entirely in

5

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1 the context of determining only whether a class was properly

2 certified under Fed. R. Civ. P. 23(b)(3) and not whether the

3 factual allegations were sufficient under Rule 12(b)(6). Levitt,

4 710 F.3d at 465. Indeed, Berwecky was itself a district court

5 decision under Rule 23(b), and the issues regarding the legal

6 sufficiency of the allegations were never finally determined. 

7 Berwecky, 197 F.R.D. at 68-69. 

8 The issues regarding the sufficiency of the pleadings under

9 Rule 12(b)(6) are quite different from those regarding

10 certification of a class pursuant to Rule 23(b)(3). Whereas the

11 Rule 12(b)(6) inquiry goes to the merits, the Rule 23(b)(3) issue

12 is whether “law or fact questions common to the class predominate

13 over questions affecting individual members.” In re Initial Pub.

14 Offerings Sec. Litig., 471 F.3d 24, 32 (2d Cir. 2006). As the

15 Supreme Court noted in Amgen Inc. v. Connecticut Ret. Plans &

16 Trust Funds, although 

17 a court’s class-certification analysis must

18 be “rigorous” and may “entail some overlap

19 with the merits of the plaintiff’s underlying

20 claim,” Wal-Mart Stores, Inc. v. Dukes, 564

21 U.S. 131 S. Ct. 2541, 2551 (2011), Rule 23

22 grants courts no license to engage in free23 ranging merits inquiries at the certification

24 stage. Merits questions may be considered to

25 the extent -- but only to the extent -- that

26 they are relevant to determining whether the

27 Rule 23 prerequisites for class certification

28 are satisfied.

29

30 133 S. Ct. 1184, 1194-95 (2013).

31 Therefore, Levitt’s comment on Berwecky at most held that

6

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1 Bear Stearns’ alleged “control” of Baron was “sufficient to

2 satisfy Rule 23(b)(3)’s predominance requirement.” Levitt, 710

3 F.3d at 467 (citing Berwecky, 197 F.R.D. at 68-69). 

4 Because Levitt is not in conflict with our summary order in

5 Fezzani, the present panel did not overlook or misapprehend the

6 law as is required for rehearing by F.R.A.P. 40(a)(2). We,

7 therefore, reaffirm our holding that Bear Stearns’ conduct as

8 alleged in the Amended Complaint is not sufficient to state a

9 claim for relief under Section 10(b) and Rule 10(b)(5). While

10 the Amended Complaint alleges in conclusory fashion that Bear

11 Stearns asserted “control” over Baron’s trading activity, it

12 fails to allege facts showing how this “control” related to

13 fabricating “market” prices of particular securities and

14 communicating them to customers or to manipulating prices with

15 regard to any particular securities. Appellants allege that Bear

16 Stearns was aware of the manipulations, knew that these

17 manipulations were leading to a crisis, but continued to clear

18 trades that did not involve unnecessary exposure to itself. 

19 Knowledge alone, however, is not enough to attach liability to a

20 clearing broker under Section 10(b). ATSI Commc’ns, Inc. v.

21 Shaar Fund, Ltd., 493 F.3d 87, 102 (2d Cir. 2007). Moreover,

22 there are legitimate reasons for clearing brokers to monitor the

23 trading activities of some introducing brokers. A clearing

24 broker guarantees the performance of buyers and sellers of the

7

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1 securities being traded and often extends credit to clearing

2 brokers. Indeed, the complaint states that Baron was in deep

3 debt to Bear Stearns, reason enough to monitor Baron’s

4 activities.

5 The facts alleged in the Amended Complaint, if proven, would

6 not show that Bear Stearns directed the fraud or instructed Baron

or Dweck1 7 to set up sham transactions. There is a real danger of

8 harm to the financial industry in allowing such allegations to

9 suffice to subject clearing brokers to the cost of discovery and

10 perhaps a trial even though there is no evidence of participation

11 by the brokers in the fraud or manipulation. The potential of

12 such litigation would deter clearing brokers from engaging in

13 normal business activities -- guaranteeing performance, extending

14 credit, and therefore often monitoring the financial condition of

15 introducing brokers -- and drive up costs of trading generally. 

16 See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S.

17 148, 163-64 (2008) (“extensive discovery and the potential for

18 uncertainty and disruption in a lawsuit allow plaintiffs with

19 weak claims to extort settlements from innocent companies,” and

20 because “contracting parties might find it necessary to protect

21 against these threats, [this may] rais[e] the costs of doing

1 Isaac R. Dweck is sued individually and as a custodian for Nathan

Dweck, Barbara Dweck, Morris I. Dweck, Ralph I. Dweck, and Jack Dweck. 

Although appellants refer broadly to “the Dwecks,” their allegations regarding

the Dwecks seem to involve only Isaac R. Dweck.

8

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1 business” and “[o]verseas firms . . . could be deterred from

2 doing business” in United States security markets.). The

3 complaint similarly alleges that Bear Stearns lent Baron money

4 and propped it up, but this activity is integral to the ordinary

clearing function of a clearing broker.2 5 Finally, appellants

6 fail to claim that Bear Stearns’ alleged “control” was sufficient

7 to render it a Section 20(a) control person with respect to

8 Baron. The petition for panel rehearing with respect to Bear

9 Stearns is, therefore, denied.

10 II.

11 We also address arguments, echoed in appellants’ petition

12 for rehearing, made in an amicus brief filed by the SEC. The SEC

2 Appellants additionally argue that (1) they relied on Bear Stearns’s

confirmation statements in future purchases of stock; (2) the confirmations

and monthly statements were themselves manipulative acts directed at

plaintiffs; and (3) the panel overlooked binding state court precedent as to

aiding and abetting liability. None of these arguments warrant rehearing.

Arguments (1) and (2) may be rejected because appellants have still

failed to sufficiently allege conduct not involving the ordinary functions of

a clearing broker, as discussed above.

Argument (3) -- regarding plaintiffs’ state law claim of aiding and

abetting fraud -- may also be easily dismissed. The District Court here

dismissed that claim on the basis that “[a]s a matter of law, clearing brokers

are not responsible or liable for the fraudulent sales practices of the

introducing broker.” Fezzani v. Bear, Stearns & Co., 592 F. Supp. 2d 410, 426

(S.D.N.Y. 2008) (citing Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 29 (2d

Cir. 2000)). Although Judge Crotty relied on federal rather than state

precedent, the Greenberg case’s holding on this point is expressly as to New

York state aiding and abetting liability. New York state law is not to the

contrary, and we have recently reaffirmed exactly this principle. See In re

Amaranth Natural Gas Commodities Litig., 730 F.3d 170, 185 (2d Cir. 2013)

(“[T]he mere performance of routine clearing services cannot constitute the

aiding and abetting of fraud under New York law.” (emphasis added)); Levitt,

710 F.3d at 466 (“Not does the ‘simple providing of normal clearing services

to a primary broker who is acting in violation of the law . . . make out a

case of aiding and abetting against the clearing broker.’” (quoting Greenberg,

220 F.3d at 29)). 

9

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1 incorrectly reads our opinion as holding that, in any and all

2 manipulation cases, liability attaches only to persons who

3 communicate a misrepresentation to a victim. The SEC argues that

4 “[t]he essence of manipulation is not a misrepresentation, but

5 market activity -- the buying and selling of shares -- that

6 itself creates a ‘false pricing signal.’ A manipulative

7 transaction, such as parking, is an ‘intentional interference

8 with the free forces of supply and demand’” (quoting ATSI, 493

9 F.3d at 100; In re Pagel, Inc., 33 S.E.C. 1003, 1985 WL 548387,

10 *3 (1985), aff’d, 803 F.2d 942 (8th Cir. 1986)). Arguing that

11 our opinion conflated manipulative conduct with

12 misrepresentations, the brief further states: 

13 This Court has similarly recognized that

14 engaging in manipulative acts -- practices

15 ‘that are intended to mislead investors by

16 artificially affecting market activity’ --

17 are violations distinct from making

18 ‘misrepresentations.’ Ganino v. Citizens

19 Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000). 

20 Emphasizing that distinction is this Court’s

21 ruling that a manipulation claim requires

22 ‘market activity aimed at deceiving investors

23 as to how other market participants have

24 valued a security.’ ATSI, 493 F.3d at 99-

25 100, 105 (emphasis added).

26

27 [Pet. Panel Rehear. 4]

28 We write only to state the obvious: our opinion did not

29 require that reliance by a victim on direct oral or written

30 communications by a defendant must be shown in every manipulation

31 case. Indeed, we agree with the propositions of law asserted by

10

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1 the SEC that, in a manipulation claim, a showing of reliance may

2 be based on “market activity” intended to mislead investors by

3 sending “a false pricing signal to the market,” upon which

4 victims of the manipulation rely. ATSI, 493 F.3d at 100. 

5 However, the discussion in ATSI of “false pricing signal[s]

6 to the market” is derived from the Supreme Court’s use of the

7 efficient market hypothesis to establish a rebuttable presumption

8 of reliance based on the effect of misrepresentations on the

9 market price of securities. Basic Inc. v. Levinson, 485 U.S.

10 224, 241-45 (1988). ATSI extended a variation of that theory to

11 market prices affected by manipulation. In the present case,

12 however, there is no claim that there existed a market in any

13 sense of the word for the shares Baron sold to appellants. The

14 shares in question are not alleged to have been traded in any

15 structure reasonably viewed as an independent market with

16 publicly reported prices purportedly representing arms-length

17 transactions based on supply and demand. See ATSI, 493 F.3d at

18 100-01 & n.4. Therefore, there is not a claim that the inflated

19 prices paid by appellants were based on “false pricing signal[s]

20 to the market.” The allegations in the present complaint state

21 only that Baron sold shares to appellants at prices that were

22 manufactured by Baron salespeople but were represented as set by

23 trading in a market that was falsely represented to exist. 

24 The appellants’ and the SEC’s concerns that our opinion

11

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1 disregarded ATSI are, therefore, wholly unfounded. Not only did

2 our opinion cite ATSI repeatedly and quote extensively from it,

3 but it read ATSI in a way favorable to manipulation claims. Our

4 opinion stated the “market” “signaled” by manipulative conduct

5 need not be fully efficient -- a highly efficient market is an

6 unlikely site for manipulation, see Fezzani v. Bear, Stearns &

7 Co. Inc., 716 F.3d 18, 21 n.2 (2d Cir. 2013) -- and suggested

8 that a future court might create a rebuttable presumption of

9 reliance in a less-than-efficient market context. See id. What

10 we did not, and could not, say was that ATSI’s holding and

11 rationale applies where no actual ongoing market for the

12 securities in question exists.

13 Our point is illustrated by the claims against Dweck. There

14 is no allegation that Dweck’s parking transactions, and their

15 purported prices, were ever reported in a market. Indeed, there

16 is no allegation that the “prices” used in the parking

17 transactions -- or in sham transactions by others coordinated

18 with the parking -- were ever made known to the buyers of the

19 securities in question or that the securities were sold to

20 appellants at prices “signaled” by the prices used in the parking

21 or coordinated transactions. There are, in short, no factual

22 allegations that Dweck’s parking transactions sent “a signal” to

23 any identified market or that any buyer or seller relied upon the

24 parking prices. In the entire 116-page complaint, appellants

12

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1 have not specifically pleaded a causal link between any single

2 stock purchase or sale and a corresponding parking by Dweck or

3 coordinated transactions by others. See ATSI, 493 F.3d at 106-

4 07.

5 Even though each of the individual plaintiffs must show

6 reliance on a misrepresentation for which the particular

7 defendant is responsible, there is no factual allegation by any

8 of the eleven individual plaintiffs as to how the various

9 “signals,” “appearances,” or “illusions” emphasized in the

10 dissent as created by Dweck’s parking moved the price they paid

11 for particular shares. Much of the dissent turns on an attempt

12 to confine the purposes of “parking” to avoiding downward

13 pressure on a security’s market price. But parking, a tactic

14 that we agree can be a serious violation, can have many purposes. 

15 To establish this, we need look no further than the SEC’s own

16 description of Baron’s frauds. Having found the lack of an

17 independent market for the securities fraudulently sold by Baron,

18 the SEC stated that “[w]hile persons may park stock for a variety

19 of reasons[,] Baron parked stock to maintain the appearance of

20 compliance with the commission’s net capital rules.” In re Bear,

21 Sterns Secs. Corp., 705 S.E.C. 537, 1999 WL 569554, *3 n.6

22 (1999).

23 We do not reject the “signals” theory. Far from it. We

24 simply recognize that it is a red herring given the nature of

13

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1 appellants’ claims. The pleading gaps described above are hardly

2 unintentional. The complaint seeks damages from all defendants

3 for all losses of all plaintiffs whether or not a particular

4 defendant is alleged to have engaged in a sham transaction in a

5 security purchased by a particular plaintiff. For example,

6 appellants’ claims against Dweck lump together sales of

7 securities that Dweck did not park with those of securities he

8 did park. Appellants claim that Dweck is liable for all of the

9 losses of all of the plaintiffs whether or not the securities

they bought were the subject of Dweck’s parking transactions.3 10

11 Clearly, ATSI’s reference to false pricing signals to a market

12 necessarily has to involve -- in private actions for damages --

13 allegations of: (i) particular securities (ii) manipulated by

14 particular defendants (iii) causing the losses to the particular

15 buyers. See ATSI, 493 F.3d at 101-02. Appellant claims fail to

16 meet that requirement. 

17 To sum up, the facts alleged in this complaint do not

18 involve any ongoing market affected by false pricing signals by

19 Dweck. What they involve are misrepresentations to the victims

20 by Baron salespeople as to how the price they were charging for

21 particular securities was arrived at. Dweck’s role in parking

3 The complaint alleges on page 107 that Dweck is liable for losses in

the “Manipulated Securities.” Page 3 of the complaint defines “Manipulated

Securities” to include several companies whose stock Dweck is not alleged to

have parked or manipulated.

14

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1 certain securities was unknown to, and not relied upon by, those

2 who purchased identical securities, much less by those who

3 purchased securities not parked by Dweck. Although the complaint

4 occasionally references an “inflated” market or “price

5 movements,” there is no allegation that customers relied on

publicly reported prices4 6 or anything other than the fraudulent

7 representations of Baron salespeople. For all that appears in the

8 complaint, the stock parking may have been intended to deceive

9 regulators, as actually found by the SEC, 70 S.E.C. 537, 1999 WL

10 569554, *3-4, and perhaps Bear Stearns, but is not alleged to

11 have caused particular transactions. Our dissenting colleagues’

12 discussion of market manipulation, while indisputable in the

13 abstract, is used to create a theory of manipulation in the

4 The SEC’s amicus brief states, in a footnote, that “the Commission

previously found, and as judicially noticeable material confirms (i.e., news

items, trading records, and public filings) the relevant securities traded ‘in

over-the-counter markets’ (i.e., NASDAQ) and on AMEX. In re Bear, Stearns

Secs. Corp., 54 S.E.C. 224, 228 (1999).” The citation has not led us to any

SEC decision, much less one “finding” public trading of the securities in

question. What the footnote may be referencing is a 1999 SEC decision, see In

re Bear, Stearns Secs. Corp., 70 S.E.C. 537, 1999 WL 569554, *2 (1999), that

includes a cursory description of Baron’s intended activities when it was

founded in 1992: “Bressman and others established Baron in 1992 to underwrite

the issuance of securities of small issuers trading in the over-the-counter

markets, and to carry on market-making and retail sales of such securities.” 

This description hardly suffices to remedy the lack of any allegations in the

complaint that transactions in the relevant securities and their pricing were

publicly available or that the prices communicated by Baron salespeople were

in any way related to publicly reported prices. Finally, and dispositively,

even if publicly reported transactions with a connection to sales by Baron

were alleged, they would not support the claims asserted in the complaint,

which seeks to hold all defendants liable for all of the plaintiffs’ losses. 

The suggestion that we take judicial notice of various unidentified documents

that may or may not show public trades seems rather anomalous in light of the

failure of the 116-page complaint to mention them and of the amicus brief’s

failure to provide detail. In any event, even if we discovered some public

trading, that would not remedy the other problems described above.

15

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1 absence of a market.

2 Given these facts, Stoneridge clearly applies to the claims

3 against Dweck. There is no presumption of reliance based on any

4 identifiable market, and -- given the lack of an allegation that

5 any plaintiff knew of the stock parking or prices used therein --

6 no allegation of reliance upon the parking transactions. See

7 Stoneridge, 552 U.S. at 159-60. 

8 Finally, as we noted in our opinion, although claiming that

9 defendants are liable for all losses of all investors caused by

10 Baron, whether or not the losses involved sham transactions by a

11 particular defendant, appellants have never offered either a

12 theory of vicarious liability under state law or of controlling13 person liability under federal law. The SEC’s amicus brief fails

14 even to purport to fill this gap.

15

16

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