09-3919-cv

Iowa Pub. Employees’ Ret. Sys. v. MF Global, Ltd.

1 UNI TEDSTATE S COURT OF APPEALS 2 3 FOR THE S ECOND CIRCUI T 4 5 Aug ustTe rm, 20 09 6 7 (Ar gue d: Jul y 1 5, 201 0 De cid ed: Se pte mbe r 1 4, 201 0) 8 9 Doc ketNo . 0 9-3 919 -cv 10 11 12 - - - - - - - - - - - - - - - - - - - - -x 13 14 IOWA P UBL IC EMP LOY EES ’ RETI REMENTSY STE M, POL ICE MEN ’S 15 ANN UIT Y & BE NEF IT FUN D O F C HICAGO , C ENT RALST ATE S, SOU THE AST 16 ANDSO UTHWES T AREA S P ENS IONFUND, ST ATE -BO STO N RETI REMENT SYS TEM , M F G LOBAL INS TIT UTI ONAL I NVE STO RS GRO UP, 17 18 Pla int iff s-Appe lla nts , 19 20 21 MIC HAE L RUBI N, ind ivi dua llyan d o n b eha lf of all ot her s 22 sim ila rlysi tua ted , 23 24 Pla int iff , 25 26 NAN ETT E KATZ , F RAN K MATA SSA , S UNS HIN E W IRE AN D CABL E D EFI NED 27 BEN EFI T P LANTRUST , i ndi vidual ly andonbe hal f o f a ll oth ers 28 sim ila rlysi tua ted , M ICHAELJ. RU DNI CK, in div idu all y a nd on 29 beh alfofal l o the rs sim ila rlysi tua ted , 30 31 Con sol ida ted -Pl ain tif fs, 32 33 - v .- 34 35 MF GLO BAL , L TD. , MAN GRO UP, PL C, KEV IN R. DAV IS, AMY S . 36 BUT TE, AL ISO N J . CARNWAT H, CHR IST OPH ER J. SMI TH, CH RIS TOP HER 37 BAT ES, HE NRI J. ST EEN KAM P, EDWARDL. GO LDB ERG , D EUT SCH E BANK 38 SEC URI TIE S, INC ., ABNAMRO ROT HSC HIL D L LC, BANC OF AME RIC A 39 SEC URI TIE S, LLC , BMO CAP ITAL MARKETS CO RP. , H SBCSE CUR ITI ES 40 (US A) INC ., KEE FE, BRUYE TTE & WOO DS, IN C., SANDL ER O’N EIL L & 41 PAR TNE RS, L. P., WACHOVIACA PIT AL MARKET S L LC, CLKI NG & 42 ASS OCI ATE S, INC ., DOW LIN G & PARTN ERS SE CUR ITI ES, LL C,2 1 E*T RAD E S ECU RIT IES LL C, FOR TIS SE CUR ITI ES LLC , G UZMAN & C O., 2 INGFI NAN CIAL MARKETS , L LC, JE FFR IES & CO. , I NC. , LAZARD 3 CAP ITAL MARKETS LL C, M.R . B EAL& CO. , M IZU HO SEC URI TIE S U SA, 4 INC ., MUR IELSI EBE RT & C O., IN C., OP PEN HEI MER& CO. , I NC. , 5 PIP ER, JA FFRAY & C O., RAYMO ND JAMES & A SSO CIA TES , I NC. , RBC 6 MARKET S C ORP ., ROB ERTW. BA IRD& CO. , I NC. , S AMU EL A. 7 RAM IRE Z & CO ., INC ., SMHCA PIT AL INC ., STI FEL , N ICO LAU S & 8 CO. , I NC. , S UN TRU ST CAP ITAL MARKETS , I NC. , T HE WIL LIAMS 9 CAP ITAL G ROU P, L.P ., UTE NDAHL CAP ITAL PART NER S, L.P ., WEL LS 10 FARGO SEC URI TIE S, LLC , W ILL IAMBLAIR& CO. , L LC, 11 12 Def end ant s-Appe lle es, 13 14 MERRIL L L YNC H, PIE RCE FE NNE R & SM ITH , I NC. , C RED IT SUI SSE 15 SEC URI TIE S ( USA ) L LC, CI TIG ROU P G LOBAL MARKET S, INC ., J.P . 16 MORGANSE CUR ITI ES INC ., LEHMANBROTH ERS IN C., UB S S ECU RIT IES 17 LLC , G OLDMANSACHS & CO. , MORGAN STANLE Y & CO ., INC ., 18 19 Con sol ida ted -De fen dan ts- App ell ees . 20 21 - - - - - - - - - - - - - - - - - - - - x 22 Bef ore : JAC OBS , C hie f Judg e, B.D . PARKER and 23 24 HAL L, Cir cui t Judg es. 25 26 Pla int iff s a ppe al fro m aJu ly 23, 20 09 jud gme nt of the 27 Uni tedSt ate s D ist ric t C our t f or the So uth ernDi str ictof 28 NewYo rk (Ma rre ro, J. ), dis mis sin g t hei r c omp lai nt for 29 fai lur e t o s tat e acl aim . The y a lle ge mat eri al 30 mis sta tement s a nd omi ssi ons ina pro spe ctu s a nd reg ist rat ion 31 sta tementofde fen dan t M F G lob al, Lt d., an d a sse rt cla ims 32 und er §§ 11, 12 (a) (2) , a nd 15 of the 19 33 Sec uri tie s A ct. 33 AFF IRM

ED IN PART, VACATED IN PART , a nd REM ANDEDfo r f urt her 34 pro cee din gs con sis ten t w ithth is opi nio n.3 1 MARK R . ROSE N, Bar rac k, Rod os & 2 Bac ine , P hil ade lph ia, PA 3 (Le ona rd Bar rac k, Bar rac k, Rod os 4 & B aci ne, Ph ila del phi a, PA; 5 Wil liam J . B an, Ba rra ck, Ro dos & 6 Bac ine , N ew Yor k, NY; Ca rol V. 7 Gil den , C ohe n M ils tei n S ell ers & 8 Tol l P LLC , C hic ago , I L; and 9 Ste venJ. To ll, Da nie l S . 10 Sommer s, Coh en Mil ste in Sel ler s 11 & T oll PL LC, Wa shi ngt on, DCon 12 the br ief ) f or App ell ant s. 13 14 DAV ID B. AND ERS (B ern ardW. 15 Nus sba um, El ain e P . G oli n, and 16 Chr ist inaT. Sh ay on the br ief ), 17 Wac hte ll, Li pto n, Ros en & K atz , 18 NewYo rk, NYfo r M F G lob al 19 App ell ees . 20 21 Dav id A. Bar ret t, Mar ily n C . 22 Kun stl er, Bo ies , S chi lle r & 23 Fle xne r L LP, Ne w Y ork , N Y f or 24 App ell ee ManGr ouppl c. 25 26 Stu artJ. Ba ski n, Her ber t S . 27 Was her , a nd Adam S . H akk i, 28 She arm an & S ter lin g L LP, Ne w 29 Yor k, NY forUn der wri ter 30 App ell ees . 31 32 Mar sha ll H. Fis hma n, Fre shf iel ds 33 Bru ckh aus De rin gerUS LL P, New 34 Yor k, NY forAp pel lee Am y S . But te. 35 36 37 DENNIS JACOB S, Chi ef Jud ge: 38 Pla int iff s a ppe al fro m aJu ly 23, 20 09 jud gme nt of the 39 Uni tedSt ate s D ist ric t C our t f or the So uth ernDi str ictof 40 NewYo rk (Ma rre ro, J. ), dis mis sin g t hei r p uta tiv e s ecu rit ies4 1 cla ss act ionco mpl ain t f or fai lur e t o s tat e acl aim . The y 2 all ege ma ter ial mi sst ate men ts andom iss ion s i n t he Jul y 2 007 3 pro spe ctu s a nd reg ist rat ionst ate men t o f d efe nda nt MF 4 Glo bal , L td. , a nd ass ertcl aim s u nde r § § 1 1, 12( a)( 2), an d 5 15 of the 19 33 Sec uri tie s A ct. I n anu tsh ell , t he sto ck of 6 MF Glo bal pl ummete d a fte r t he Feb rua ry 200 8 r eve lat ionth at 7 a b rok er hadev ade d t rad ingre str ict ion s. Offo ur gro ups of 8 all ega tio ns, di smi ssa l o f t wo is notap pea led . As to the 9 cla im tha t t he pro spe ctu s a nd reg ist rat ionst ate men t 10 exa gge rat ed ris k-m ana gementme asu res , w e v aca te the 11 dis mis sal be cau se the di str ictco urter ron eou slyap pli ed the 12 bes pea ks- cau tio n d oct rin e. As toth e r ema ini ng cla im, th at 13 the pr osp ect us andre gis tra tio n s tat eme nt fai ledtodi scl ose 14 def ici enc ies inth e f irm ’s con tro ls of cli entac cou nts , w e 15 aff irminpa rt the di str ictco urt ’s dis mis sal fo r l ackof 16 cau sat ion , a nd in par t v aca te andre man d. 17 18 I 19 In the mo rni ng hou rs of Feb rua ry 27, 20 08, a bro kerat 20 MF Glo bal , L td. lo st $14 1.5 mi lli on spe cul ati ng in whe atTh ese fa cts , d raw n f romth e p lai nti ffs ’ c omp lai nt, 1 are ta kenas tr ue. S ee, e. g., Ha rri ngt on v. Cou ntyof Suf fol k, 607 F. 3d 31, 33 (2 d C ir. 20 10) (When“r evi ew[ ing ]

. . . a d ist ric t c our t’s di smi ssa l f or fai lur e t o s tat e a cla im, ” w e “ ass um[ e] all we ll- ple ade d, non con clu sor y f act ual all ega tio ns in the co mpl ain t t o b e t rue .”) . 5 1 fut ure s. T he bro ker , E vanDo ole y, acc umu lat ed the lo sse s 1 2 by tak ingpo sit ion s v ast ly in exc ess ofth e f irm ’s tra din g 3 lim its an d c oll ate ral re qui rement s. MFGl oba l w as 4 res pon sib le forse ttl ingDo ole y’s tr ade s a t t he 5 cle ari ngh ous e, andab sor bedth e l oss es. Whenne ws rea che d 6 the ma rke ts on Feb rua ry 28, MFGl oba l’s st ockpr ice fe ll 7 28% ; i t f ell a fur the r 1 7% the da y a fte r, res ult ingina 8 two -da y m ark et cap ita liz ati on los s e xce edi ng $1. 1 b ill ion . 9 The Do ole y t rad ingin cid entre vea ledtoth e p ubl ic tha t 10 MF Glo bal ’s int ern al ris k c ont rol s h ad notbe en app lie d t o 11 bro ker s t rad ingfo r t hei r o wn acc oun ts (orta kin g c lie nt 12 ord ers byph one ). MFGl oba l h ad con tro ls forli mit ingit s 13 exp osu re to mar ketri sks inbr oke rag e a cco unt s b y 14 res tri cti ng tra din g a nd by man agi ng mar gincr edi t w ith 15 col lat era l a nd oth er requir eme nts . ButMFGl oba l s ome times 16 dea cti vat ed the co ntr ols (a s w ithDo ole y) to spe ed 17 tra nsa cti ons . 18 Thi s p uta tiv e c las s a cti on was fi ledonMa rch6, 20 08,Th e p ros pec tus an d r egi str ati on sta tementco nta ine d 2 sub sta nti all y s imi larst ate men ts andwo rdi ng in rel eva nt par t. An y a nal ysi s o f s tat eme nts orom iss ion s i n e ith er is the ref ore equal ly app lic abl e t o t he oth er. Se cti on 11 imp ose s l iab ili ty forma ter ial 3 mis sta tement s a nd omi ssi ons inre gis tra tio n s tat eme nts . See 15 U.S .C. § 77k (a) . And§ 12( a)( 2) imp ose s l iab ili ty for mat eri al mis sta tement s a nd omi ssi ons inpr osp ect use s ( and cer tai n o the r c ommuni cat ion s). S ee 15 U.S .C. § 77 l (a) (2) . Sec tio n 1 5 i mpo ses jo intan d s eve ral vi car iou s lia bil ityfo r v iol ati ons of§§11 an d 1 2 o n a ny per sonwh o “co ntr ols ” t he pri mar y v iol ato r. Se e 1 5 U .S. C. § 7 7 o . The fat e o f t he pla int iff s’ § 1 5 c lai m i s t her efo re who lly dep end entonou r d isp osi tio n o f t hei r §11 an d §12 cl aim s, andwi ll notbe an aly zedse par ate ly her e. 6 1 all egi ng, onbe hal f o f c ert ainpu rch ase rs of MF Glo bal 2 sto ck, th at the fi rm mis rep res ent ed andfa ile d t o d isc los e 3 rel eva nt mat eri al inf orm ati on in a p ros pec tus an d 4 reg ist rat ionst ate men t is sue d whenth e b rok era ge firm w ent 2 5 pub licinJu ly 200 7. Un til it s i nit ial pu bli c o ffe rin g 6 (IP O), MFGl oba l h ad bee n t he bro ker age arm o f M an Gro up, 7 Plc , ahe dge fu nd. T he def end ant s a re MF Glo bal , M an Gro up, 8 the IP O u nde rwr ite rs, an d v ari ous MFGl oba l o ffi cer s a nd 9 dir ect ors . Dam age s a re sou ghtun der§§11 , 1 2(a )(2 ), and15 10 of the 19 33 Sec uri tie s A ct, 15 U. S.C . § § 7 7k, 77 l (a) (2) & 3 11 77 o . 12 In res pon se to a m oti on und er Fed era l Rule ofCi vil 13 Pro cedure 12 (b) (6) , t he dis tri ct cou rt dis mis sedth eA dir ect ion al tra de is an aff irm ati ve betonth e 4 mar ketth at inc rea ses th e t rad er’ s r isk --i n c ont ras t t o a hed gin g t rad e, whi ch reduce s r isk . 7 1 compla intinit s e nti ret y. Se e Rubi n v . M F G lob al, Lt d., 2 634 F. Su pp. 2d45 9 ( S.D .N. Y. 200 9). T he dis tri ct cou rt 3 sor tedth e a lle gat ion s i ntofo ur gro ups , i d. at 469 -72 , e ach 4 of whi ch it ana lyz ed sep ara tel y: 5 [1] Directional Trading: That the prospectus 6 misrepresented the types of trading--directional 4 7 or only hedging--conducted by MF Global; 8 [2] Refco: That the prospectus failed to disclose 9 the lack of adjustments to MF Global’s risk10 management systems made during and after Man 11 Group’s acquisition of Refco, another brokerage 12 firm; 13 [3] Risk Management: That the prospectus 14 misrepresented and failed to disclose material 15 facts relevant to the strengths and weaknesses of 16 MF Global’s risk-management system; an d 17 [4] Client Accounts: That the prospectus failed to 18 disclose “that traders did not have limits when 19 trading for clients, and that with the proper 20 password anyone could access client accounts and 21 trade in them at any time,” id. at 470; 22 The court dismissed the first group of allegations on the 23 ground that the cited statements were not false or 24 misleading, and the second on the ground that the plaintiffs 25 had insufficiently alleged the omission of any materialTh e p ros pec tus ’s rel eva nt cau tio nar y l ang uag e 5 inc lud ed the fo llo win g:

• “[O ]urri sk- man age men t meth ods ma y p rov e t o b e ine ffe cti ve bec aus e o f t hei r d esi gn, th eir imp lement ati on or the la ck of ade qua te, acc ura te or timelyin format ion . If ourri skman age men t e ffo rts ar e i nef fec tiv e, we cou ld suf ferlo sse s t hatco uldha ve a m ate ria l adv ers e e ffe ct on ourfi nan cia l c ond iti on or ope rat ingre sul ts. ”

• “[W ]e are expos ed to . . . ris ks rel ati ng to emp loy ee mis con duc t. Am ongot herth ing s, our emp loy ees co uldex ecu te una uth ori zed tra nsa cti ons fo r o ur cli ent s o r f or the ir own or anyofou r a cco unt s.” 8 1 fact. The plaintiffs do not appeal those specific rulings. 2 Claims premised on allegations concerning risk management 3 were dismissed on the ground that cautionary language 4 elsewhere in the prospectus rendered the cited statements 5 5 or omissions non-actionable pursuant to the bespeaks-caution 6 doctrine. (An alternative ground is discussed in note 13.) 7 The fourth category of allegations (concerning client 8 accounts) was dismissed on the ground that alleged omissions 9 concerning the accounts of clients could not have caused the 10 loss alleged, which resulted from revelations concerning theTh e d ist ric t c our t d ism iss ed all cl aim s w ith out 6 pre jud ice tore ple adi ng pro vid ed tha t t he pla int iff s c oul d “pl aus ibl y s how [] tha t s ucha rep lea din g w oul d n ot be fut ile .” Ru bin , 6 34 F. Sup p. 2d at 475 . The pl ain tif fs sub sequen tlypr off ere d a n amen dedco mpl ain t; butaf ter rev iew ingitth e d ist ric t c our t d eni ed lea ve to rep lea d, “fi nd[ ing ] t hatth e f ili ng of the Pr opo sedAmend ed Compla int wou ld be fut ile .” Th oug h t he pla int iff s c ont estth is den ial on app eal , f or the re aso ns setou t i n n ote 13 we ne ed not rea ch tha t a ssi gnmentofer ror . Th e d oct rin e ( andph ras e) see ms to hav e a ppe are d 7 fir st in Pol in v. Con duc tro n C orp ., whi ch hel d t hat sta tement s “ of exp ect ati on, ofan tic ipa tio n, andof pos sib ili tie s” “be spe ak cau tio n i n o utl ookan d f all fa r sho rt of the as sur anc es requir ed fora fin din g o f f als ity andfr aud .” 55 2 F .2d79 7, 806 n. 28 (8t h C ir. 19 77) . In thi s C irc uit , t he doc tri ne fir st app ear ed whe n i t w as quo ted 9 1 accounts of non-clients. 6 2 The pl ain tif fs timelyap pea led . We rev iewth e d ist ric t 3 cou rt’ s o rde r d e n ovo . E.g ., Har rin gto n v . C oun ty of 4 Suf fol k, 607 F. 3d 31, 33 (2 d C ir. 20 10) . 5 6 II 7 To pre vai l o n a§ 11 or § 1 2(a )(2 ) c lai m, a p lai nti ff 8 mus t s howth at the re lev antco mmu nic ati on eit hermi sst ate d 9 or omi tte d ama ter ial fa ct. See 15 U.S.C. § 77k; 15 U.S.C. 10 § 77 l (a)(2). The bespeaks-caution doctrine is a corollary 11 of “the well-established principle that a statement or 12 omission must be considered in context.” In re Donald J. 7app rov ing ly in dic ta in Gol dma n v . B eld en, 75 4 F .2d10 59,

106 8 ( 2d Cir . 1 985 ); it was fi rstap pli ed in Luc e v . Ede lst ein , 8 02 F.2 d 4 9, 56 (2dCi r. 198 6). T hou gh we ori gin all y a ppl iedbe spe aks ca uti on to an 8 act ionun der§ 10( b) of the 19 34 Sec uri tie s E xch ang e A ct, 15 U.S .C. § 78j (b) , s ee Luc e, 802 F. 2d at 56, we ha ve sin ce app lie d t he doc tri ne to act ion s u nde r §11 , s ee, e. g., Rombac h v . C han g, 355 F. 3d 164 , 1 72- 74 (2dCi r. 200 4), an d § 1 2(a )(2 ), see , e .g. , P . S tol z F ami ly P’s hipL. P v . D aum , 355 F. 3d 92, 96 -98 (2 d C ir. 20 04) , o f t he 193 3 S ecu rit ies Act . 10 1 Trump Casino Sec. Litig., 7 F.3d 357, 364 (3d Cir. 1993); 2 accord, e.g., Shaw v. Digital Equip. Corp., 82 F.3d 1194, 3 1213 (1st Cir. 1996); Fecht v. Price Co., 70 F.3d 1078, 4 1081-82 (9th Cir. 1995); Rubinstein v. Collins, 20 F.3d 160, 5 167-68 (5th Cir. 1994). A forward-looking statement 6 accompanied by sufficient cautionary language is not 7 actionable because no reasonable investor could have found 8 the statement materially misleading. S ee, e. g., P. St olz 8 9 Fam ilyP’ shi p L .P. v. Da um, 35 5 F .3d92 , 9 6-9 7 ( 2d Cir . 10 200 4). I n s uchci rcumst anc es, itca nno t b e s upp ose d b y a 11 rea son abl e i nve sto r t hatth e f utu re is set tle d, or 12 una tte nde d b y c ont ing enc y. Fo r e xample , L uce v. Ede lst ein 13 hel d t hatst ate men ts in an off eri ng mem ora ndum “ as to the 14 pot ent ial ca sh andta x b ene fit s o f [ a] par tne rsh ip” we reE. g. Sta tementbyth e C omm iss iononth e D isc los ure of 9 Pro jec tio ns of Fut ure Ec ono micPe rfo rma nce , S ecu rit ies Ac t Rel eas e N o. 536 2, 197 3 W L 1 493 09, at*1 (F eb. 2, 19 73) ; Lou is Los s e t a l., 2 Sec uri tie s Regu lat ion77 & n.8 0 ( 4th ed. 20 07) .

See generally Safe Harbor for Forward-Looking 10 Statements, Securities Act Release No. 2324, 1994 WL 562021 (Oct. 13, 1994) (recounting history of SEC policy toward forward-looking information). 11 1 non -ac tio nab le bec aus e “ the Of fer ingMe mor andum mad e i t 2 qui te cle ar tha t i ts pro jec tio ns of pot ent ial ca sh andta x 3 ben efi ts wer e ‘ nec ess ari ly spe cul ati ve in nat ure [,] ’ . . . 4 tha t ‘ [n] o a ssu ran ce [co uld ] b e g ive n t hatth ese pr oje cti ons 5 [wo uld ] b e r eal ize d,’ ” a nd “th at ‘[a ]ct ual re sul ts mayva ry 6 fro m t he pre dic tio ns andth ese va ria tio ns maybe ma ter ial .’” 7 802 F.2d 49, 56 (2d Cir. 1986). 8 The doctrine is one of a set of rules coping with the 9 problem that forward-looking information poses for 10 securities disclosure laws. Fo r d eca des , t he dis clo sur e o f 11 for war d-l ook ingin format ionwa s g ene ral ly pro hib ite d b y t he 12 Sec uri tie s a nd Exc han ge Commis sio n ( SEC ). T hatpo lic y 9 13 cha nge d i n t he 197 0s. To encourage disclosure of forward- 10 14 looking information notwithstanding certain vulnerabilities, 15 including the tendency of predictions to be embarrassed bySe e S tat eme nt by the Co mmi ssi on on the Di scl osu re of 11 Pro jec tio ns of Fut ure Ec ono micPe rfo rma nce , S ecu rit ies Ac t Rel eas e N o. 536 2, 197 3 W L 1 493 09, at*3 (F eb. 2, 19 73) . 12 1 the passage of time, regulators developed safe harbors. 11 2 The SEC promulgated a regulatory safe harbor in 1979, see 3 Safe Harbor Rule for Projections, Securities Act Release No. 4 532, 1979 WL 181199 (June 25, 1979) (codified as amended at 5 17 C.F.R. §§ 230.175, 240.3b-6); and Congress followed suit 6 in 1995, see Private Securities Litigation Reform Act of 7 1995 § 102(a), Pub. L. No. 104-67, 109 Stat. 737, 749 8 (codified at 15 U.S .C. § 77z -2 ). Bespeaks caution is the 9 courts’ contribution. 10 It is settled that the bespeaks-caution doctrine 11 applies only to statements that are forward-looking. See P. 12 Stolz Family P’ship, 355 F.3d at 96-97 & n.3 (adopting 13 explicitly a forward-looking limitation to the bespeaks14 caution doctrine, but acknowledging that “elaborating such a 15 distinction may be unnecessary” “[b]ecause the ‘bespeaks 16 caution’ doctrine is often defined with respect to forward17 looking statements”). We have consistently observed that 18 limitation.InLu ce, we ap pli ed bes pea ks cau tio n t o p red ict ion s 12 of “ potential cash and tax benefits.” 802 F.2d at 56. In I. Mey er Pin cus & Ass oci ate s, P.C . v . Oppe nhe ime r & Co. , I nc. , w e a ppl iedbe spe aks ca uti on to pre dic tio ns of a sec uri ty’ s p erf orm anc e ( tho ughwe do ubt ed tha t t he cha lle nge d s tat eme nt exp res sedan y p red ict ionatal l). 9 36 F.2 d 7 59, 76 2-6 3 ( 2d Cir . 1 991 ) In Olk ey v. Hyp eri on 199 9 T ermTr ust , I nc. , w e a ppl ied bes pea ks cau tio n t o p red ict ion s o f a n a sse t m ana ger ’s abi lit y t o h edg e i nte res t r ate ri sk. 9 8 F .3d2, 9- 10 (2d Cir . 1 996 ). In Hun t v . A lli anc e N ort h Amer ica n G ove rnmentIn come Tru st, In c., we de cli nedtoap plybe spe aks ca uti on to sta tement s b y amu tua l f undth at it “in ten dedtous e h edg ing dev ice s” ins ofa r a s t hos e s tat eme nts su gge ste d t hatsu ch hed gin g d evi ces we re ava ila ble toth e f undev en whi le “th e 13 1 In P. Stolz Family Partnership, for example, the 2 doctrine insulated predictions of future capital-raising 3 transactions (“a sought-after $30 million or a future IPO”), 4 but not statements about “the existence of an agreement to 5 try to plan an IPO.” Id. at 97-98. Most recently, in 6 Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004), we applied 7 bespeaks caution to statements of optimism concerning the 8 future performance of newly acquired businesses, see id. at 9 172-76; but not to alleged omissions of information 10 concerning existing financial and operational difficulties, 11 see id. at 173. More examples are set out in the margin. 12Fun d m ana ger s [ all ege dly ] k new(o r r eck les slydi sre gar ded )

tha t t hes e h edg ingte chn iqu es wer e n ot ava ila ble (b eca use the y w ere to o c ost ly) .” 15 9 F .3d72 3, 728 -29 (2 d C ir. 199 8). In Halperin v. eBanker USA.com, Inc. , w e a ppl ied bes pea ks cau tio n t o s tat eme nts of“f utu re pla ns, ” t hat “[t ]he Co mpa ny int end s t o e nde avo r t o f ile re gis tra tio n sta tement s w ithth e S EC, ” whic h t he pla int iff s a lle gedwa s mat eri all y m isl ead ingin sof ar as it ove rst ate d t he lik eli hoo d o f r egi str ati on. 295 F.3d 352, 355 , 3 59- 60 (2d Cir. 2002) . 14 1 Her e, it is all ege d f or exampl e t hat the pr osp ect us 2 “fa ile d t o d isc los e t he mat eri al fac t t hat[M F G lob al’ s] 3 Ris k M ana gementSy ste m p rot oco ls andpr oce dur es . . . did 4 notap plytoth e C omp any ’s emp loy ees . . . [when ] t rad ing 5 forth eirow n a cco unt s.” T hatal leg ati on spe cif ies an 6 omi ssi on of pre sen t f act , t o whic h b esp eak s c aut iondo es not 7 app ly: Th e a ppl ica bil ityofMFGl oba l’s ri sk- man age men t 8 sys temtoemplo yee ac cou nts wa s a sce rta ina ble wh en the 9 cha lle nge d s tat eme nts we re mad e. Itwa s t her efo re err or for 10 the di str ictco urttore ly on the be spe aks -ca uti on doc tri ne 11 to dis mis s t hatcl aim . 12 The di str ictco urtas kedwh eth er “Pl ain tif fs are 13 ess ent ial ly all egi ng tha t D efe nda nts fa ile d t o d isc los e t he 14 ris k o f afu tur e n ega tiv e e ven t.” Rubi n, 634 F. Su pp. 2dat 15 468 . The do ctr ine th en was ap pli ed to immuni ze anyInth e a lte rna tiv e, the di str ictco urt held that the 13 plaintiffs’ risk-management allegations failed to state a claim because they focused on systemic risk-management problems only in February 2008, when the trading incident occurred, not in July 2007, at the time the prospectus and registration statement issued:

Plaintiffs’ allegations are based on information about the MF Global risk management system that was disclosed after the February 2008 Trading Incident. . . . [T]here is nothing to indicate that this was the state of affairs in July 2007, when the Prospectus was issued. In other words, Plaintiffs have offered no factual averments that the alleged misrepresentations and omissions were, in fact, false or misleading at the time the Prospectus was issued. Rubin, 634 F. Supp. 2d at 474. This conclusion fails to 15 1 sta tementth at the co urtde eme d t o b e “ ess ent ial ly all egi ng” 2 the no n-d isc los ure ofa ris k, reg ard les s o f whet herth e 3 sta tementlo oke d t o t he fut ure orwa s r oot ed in the kn own 4 pre sen t: 5 The Co urtfi nds th at it is app rop ria te to app ly 6 the “b esp eak s c aut ion ” d oct rin e h ere be cau se 7 Pla int iff s’ obj ect ion s t o m isr epr ese nta tio ns abo ut 8 spe cif ic or gen era l s hor tco min gs in MF Glo bal ’s 9 ris k m ana gementsy ste m t hatex ist ed at the ti me 10 the Pr osp ect us was is sue d a re, infa ct, ob jec tio ns 11 to Def end ant s’ all ege d f ail ure todi scl ose th e 12 pos sib ili ty tha t t he ris k m ana gementsy ste m m igh t 13 be una ble topr eve nt fut ure ne gat ive ou tco mes . 14 Id. at47 2. Th is mis sta tes th e t hre sho ld tes t, andap pli es 15 the be spe aks -ca uti on doc tri ne toobr oad ly. 13draw a reasonable inference in the plaintiffs’ favor. See,

e.g., In re DDAVP Direct Purchaser Antitrust Litig., 585 F.3d 677, 692 (2d Cir. 2009) (stating that courts must “draw[] all inferences in favor of the plaintiff” when ruling on a motion to dismiss). Depending on the problem, its existence in February 2008 may support an inference that it was present six months earlier. This is sufficient “‘to raise [the plaintiffs’] right to relief above the speculative level.’” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Bec aus e w e r eje ct thi s a lte rna tiv e b asi s, we nee d n ot rea ch the pl ain tif fs’ ar gumentth at the di str ictco urter red by den yin g t hei r m oti on to rep lea d. Th e p lai nti ffs ar gue her e t hatth eirpr ofe rre d r epl ead ingre med iedde fic ien cie s in the op era tiv e c omp lai nt by suf fic ien tlysh owi ng tha t M F Glo bal ’s ris k-m ana gementla cun ae exi ste d whenth e p ros pec tus andre gis tra tio n s tat eme nt iss ued . The operative complaint sup por ts tha t i nfe ren ce wit hou t amen dme nt. 16 1 The district court worried that “[p]laintiffs in 2 securities fraud actions can easily characterize many 3 alleged misrepresentations or omissions regarding the risk 4 of future negative events as statements that simply concern 5 discrete present or historical fact.” Id. at 468. “ For 6 exampl e, an all ega tio n t hata cor por ati on fai ledtodi scl ose 7 the ri sk tha t i t w oul d d efa ultonou tst and ingfi nan cia l 8 obl iga tio ns in the fu tur e c oul d j ustas ea sil y b e 9 cha rac ter ize d a s afa ilu re to dis clo se pre sen t o r h ist ori cal 10 fin anc ial in sta bil ity .” Id .17 1 Investors are interested in issuer statements only 2 insofar as those statements bear on the future. But while 3 it is true that predictions about the future can represent 4 interpretations of present facts (and vice versa), there is 5 a discernible difference between a forecast and a fact, and 6 courts are competent to distinguish between the two. A 7 forward-looking statement (accompanied by cautionary 8 language) expresses the issuer’s inherently contingent 9 prediction of risk or future cash flow; a non-forward10 looking statement provides an ascertainable or verifiable 11 basis for the investor to make his own prediction. 12 The line can be hard to draw, and we do not now 13 undertake to draw one. However, a statement specifying the 14 risk of default is distinct from a statement of present or 15 historical financial instability, even though they both bear 16 upon the same risk. And a statement of confidence in a 17 firm’s operations may be forward-looking--and thus insulated 18 by the bespeaks-caution doctrine--even while statements or 19 omissions as to the operations in place (and present 20 intentions as to future operations) are not.So me of the “p uff ery ” c ase s ( tho se ana lyz ingpu ffi ng 14 of pre sen t o r h ist ori cal fa cts ) c an be see n a s f all ingin to thi s c ate gor y: To the ex ten t t hatpu ffe ry sug ges ts a r osy fut ure , t he pri nci ple un der lyi ng bes pea ks cau tio n a ppl ies . See , e .g. , E CA, Lo cal 13 4 I BEWJo intPe nsi on Tru st of Chi . v. JP Mor ganCh ase Co ., 553 F. 3d 187 , 2 05- 06 (2dCi r. 200 9) (“P uff ery ” s tat eme nts th at iss uer ’s ris k m ana gementwa s eff ect ive an d “ hig hlydi sci pli ned ” w oul d n ot be rel iedup on by a r eas ona ble in ves torbe cau se the y “ didno t, andco uld not , amou nt to a g uar ant ee tha t [ the is sue r’s ] c hoi ces wo uld pre ven t f ail ure s i n i ts ris k m ana gementpr act ice s.” ). 18 1 A statement may contain some elements that look forward 2 and others that do not. Shaw, 82 F.3d at 1213. A 3 characterization of present or historical fact may be 4 partially predictive. See, e.g., id. at 1213 (holding 14 5 that a statement that restructuring reserve was “adequate” 6 is forward-looking insofar as it “suggests that [the issuer] 7 would take no further restructuring charges in the near-term 8 future.”). A present fact like an appraisal or valuation 9 may depend on predictions: of future cash flows for example, 10 or future risks. Donald C. Langevoort, Disclosures That 11 “Bespeak Caution”, 49 Bus. Law. 481, 489 (1994). A forecast 12 may extrapolate present or historical facts into the future. 13 Id. But in each instance the forward-looking elements and 14 the non-forward-looking are severable.MFGl oba l r ema rks ina foo tno te tha t t he hei ght ene d 15 ple adi ng sta nda rd of Fed era l Rule ofCi vil Pr oce dur e 9 (b) mayap plytoatle astso me of the pl ain tif fs’ al leg ati ons . See ge ner all y R omb ach , 3 55 F.3 d a t 1 71 (ho ldi ng tha t “ the hei ght ene d p lea din g s tan dar d o f Rule 9( b) app lie s t o S ect ion 11 andSe cti on 12( a)( 2) cla ims in sof ar as the cl aim s a re pre mis ed on all ega tio ns of fra ud” ). Th e d ist ric t c our t dec lin ed to add res s t his is sue , s ee Rub in, 63 4 F . S upp . 2 d at 469 , a nd so do we. S ee, e. g., To lbe rt v. Que ens Co ll. , 242 F. 3d 58, 75 (2 d C ir. 20 01) (“ It is a s ett ledap pel lat e rul e t hatis sue s a dve rte d t o i n ape rfu nct oryma nne r, una cco mpa nie d b y s ome ef for t a t d eve lop ed arg ume nta tio n, are dee medwa ive d.” (i nte rna l quot ati on mar ks omi tte d)) ; N ort on v. Sam ’s Clu b, 145 F. 3d 114 , 1 17 (2dCi r. 199 8) (“I ssu es not suf fic ien tlyar gue d i n t he bri efs ar e c ons ide redwa ive d a nd normal ly wil l n ot be add res sedonap pea l.” ). 19 1 Here, characterizations of MF Global’s risk-management 2 system--that the system was “robust,” for example--invite 3 the inference that the system will reduce the firm’s risk. 4 However, bespeaks caution does not apply insofar as those 5 characterizations communicate present or historical fact as 6 to the measures taken. Rombach, 355 F.3d at 173 7 (“Cautionary words about future risk cannot insulate from 8 liability the failure to disclose that the risk has 9 transpired.”). 10 We rem andtoth e d ist ric t c our t t o a nal yze th e 11 pla int iff s’ rem ain ingal leg ati ons un derth e s tan dar d s et out 12 abo ve. 1520 1 2 III 3 The plaintiffs also challenge the dismissal of their 4 “client accounts” allegations: that the prospectus failed to 5 disclose “that traders did not have limits when trading for 6 clients, and that with the proper password anyone could 7 access client accounts and trade in them at any time,” 8 Rubin, 634 F. Supp. 2d at 470. The district court dismissed 9 these allegations on the ground that the plaintiffs’ alleged 10 losses resulted from the failure to manage trading risks in 11 accounts of non -clients (such as Dooley), and that the 12 losses therefore were not caused by alleged misstatements or 13 omissions concerning accounts of clients. 14 Loss causation is not an element of a plaintiff’s prima 15 facie case; rather, the absence of loss causation is an 16 affirmative defense. See 15 U.S.C. §§ 77k(e), 77 l (b). A 17 causation defense prevails if the defendant “proves” that an 18 otherwise recoverable loss was not caused by the alleged 19 misstatement or omission. Id. “An affirmative defense may 20 be raised by a pre-answer motion to dismiss under Rule21 1 12(b)(6) . . . if the defense appears on the face of the 2 complaint.” Pani v. Empire Blue Cross Blue Shield, 152 F.3d 3 67, 74 (2d Cir. 1998). 4 The district court dismissed the plaintiffs’ client 5 accounts allegations because “the Trading Incident that 6 sparked the sharp drop in MF Global’s stock price, which 7 caused the losses that Plaintiffs complain of, had nothing 8 to do with MF Global’s trading for clients or trading in or 9 access to client accounts. . . . Rather, the Trading 10 Incident involved trades in a non-client account.” Rubin, 11 634 F. Supp. 2d. at 470. 12 This is sound as far as it goes. But the Dooley 13 trading incident (and events precipitated by it) revealed 14 that risk-management deficiencies affected client accounts 15 as well. Shortly after the Dooley incident, MF Global 16 “acknowledged that existing internal controls could have 17 stopped Mr. Dooley’s trades from being processed--but were 18 turned off in a few cases to allow for speedier transactions 19 by brokers at the firm who traded for themselves or took 20 customer orders by phone .” (emphasis added). Thus, at22 1 least as to phone orders, the firm’s risk-management 2 controls did not reliably constrain brokers who executed 3 trades on behalf of clients. Unsurprisingly, a managing 4 director at Fitch Ratings publicly stated that the Dooley 5 incident “does open the view that [MF Global’s] customers 6 are taking more risk than we thought.” (emphasis added). 7 This concern--likely shared by others--may have had a 8 negative impact on MF Global’s stock price because client 9 business might be lost and because clients’ market risks are 10 at least partially shared by the firm. 11 However, neither the Dooley trading incident nor 12 subsequent events revealed to the public that “anyone with 13 the password could access client accounts . . . and trade at 14 will therein,” as the plaintiffs allege. This allegation 15 concerns a security risk, of client fund misappropriation-- 16 not the sort of risk made plain by and after the Dooley 17 losses. It is therefore “app[arent] on the face of the 18 complaint,” Pani, 152 F.3d at 74, that the stock price 19 decline (and the plaintiffs’ resulting losses) cannot be 20 attributed to the prospectus’s failure to disclose that23 1 alleged fact; and the allegation was properly dismissed. 2 Accordingly, we affirm the district court insofar as it 3 dismissed the plaintiffs’ allegation concerning access to 4 client accounts; but vacate and remand insofar as it 5 dismissed their allegation that telephone orders were not 6 subject to risk management. 7 *** 8 Forth e f ore goi ng rea son s, the di str ictco urt ’s 9 jud gme nt is aff irmed in par t a nd vac ate d i n p art , a nd the 10 cas e i s r ema nde d f or fur the r p roc eed ing s c ons ist entwi th 11 thi s o pin ion .