14‐2241
In Re: TVIX Securities Litigation
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER
JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER
THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A
SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley
Square, in the City of New York, on the 16th day of December, two thousand
fourteen.
PRESENT: RICHARD C. WESLEY,
PETER W. HALL,
GERARD E. LYNCH,
Circuit Judges.
____________________________________________
ELITE AVIATION LLC, ENDLESS H3,
Plaintiffs‐Appellants,
DAVID SCHOTTENSTEIN, Individually and on behalf of all others similarly
situated,
Plaintiff,
WILLIAM BOSTEDO, Individually and on Behalf of All others Similarly
Situated, GRACE TRADING, LLC, ANN NICOLOSI, Individually and on behalf
of all other similarly situated,
Consolidated‐Plaintiffs,
v. No. 14‐2241
CREDIT SUISSE AG, RENATO FASSBIND, CREDIT SUISSE SECURITIES (USA)
LLC, PAUL J. OʹKEEFE, HANS‐ULRICH DOERIG, BRADY W. DOUGAN, D.
NEIL RADEY, WALTER B. KIELHOLZ, PETER BRABECK‐LETMATHE,
THOMAS W. BECHTLER, ROBERT H. BENMOSCHE, NOREEN DOYLE, JEAN
LANIER, ANTON VAN ROSSUM, AZIZ R.D. SYRIANI, DAVID W. SYZ,
ERNST TANNER, RICHARD E. THORNBURGH, PETER F. WEIBEL,
Defendants‐Appellees,
NICHOLAS CHERNEY, VELOCITYSHARES LLC, RICHARD HOGE, VLS
SECURITIES LLC,
Consolidated‐Defendants–Appellees.
____________________________________________
FOR APPELLANTS: MARK C. RIFKIN (Matthew M. Guiney, on the brief),
Wolf Haldenstein Adler Freeman & Herz LLP, New
York, NY.
FOR APPELLEES: JAMES H.R. WINDELS (Emmet P. Ong, Melissa C.
King, Scott A. Eisman, on the brief), Davis Polk &
Wardwell LLP, New York, NY.
____________________________________________
Appeal from the United States District Court for the Southern District of
New York (Swain, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED AND DECREED that the judgment of the district court be and
hereby is AFFIRMED.
2
Plaintiffs‐Appellants Elite Aviation LLC and Endless H3 appeal from an
order and judgment dismissing their complaint for failure to state a claim
pursuant to Federal Rule of Civil Procedure 12(b)(6).1 See In re TVIX Secs. Litig.,
___ F. Supp. 2d ___, 2014 WL 2575776 (S.D.N.Y. June 9, 2014). We assume the
parties’ familiarity with the underlying facts, procedural history, and issues on
appeal.
Plaintiffs in this putative class action allege that they purchased Velocity
Shares Daily 2x VIX Short Term Exchange Traded Notes (TVIX ETNs) pursuant
to a Registration Statement, Prospectus, Pricing Supplement, and a February
2012 Press Release issued by Defendant Credit Suisse that contained
misstatements or omissions of material fact in violation of Sections 11 and 15 of
the Securities Act, 15 U.S.C §§ 77k, 77o.
In assessing the materiality of an alleged misstatement, we consider
“[w]hether the defendants’ representations, taken together and in context, would
have misled a reasonable investor.” In re Morgan Stanley Info. Fund Secs. Litig.,
592 F.3d 347, 360 (2d Cir. 2010). “It is not sufficient to allege that the investor
1 The standard of review is neither in dispute nor determinative in this matter. This
Court reviews a district court’s dismissal under Rule 12(b)(6) de novo, accepting all
factual allegations as true and drawing all reasonable inferences in favor of the plaintiff.
Litwin v. Blackstone Grp., L.P., 634 F.3d 706, 715 (2d Cir. 2011).
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might have considered the misrepresentation or omission important.” In re
ProShares Trust Secs. Litig., 728 F.3d 96, 102 (2d Cir. 2013) (internal quotation
marks omitted)
First, Plaintiffs allege that the Pricing Supplement contained material
misstatements regarding the risk of holding TVIX ETNs for longer than one
trading session. In particular, Plaintiffs point to a series of hypothetical examples
projecting performance of TVIX ETNs over a twenty‐year period and references
to a “cash payment at maturity” and the “path of daily returns” as suggesting
that the TVIX ETNs could or should be held longer than a single trading day.
However, the Pricing Supplement clearly disclosed in numerous, repeated,
sometimes boldfaced warnings that the ETNs were short‐term trading vehicles
designed to achieve their stated investment objectives only on a daily basis and
that the investment’s value was likely to erode if held for longer periods. The
hypothetical examples—prefaced by extensive disclaimers—could only be
viewed as examples of the effects of various market factors on the ETNs and did
not suggest that they were an appropriate long‐term investment. Neither the
hypothetical examples nor the other language cited by Plaintiffs undercuts the
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resounding theme of the Pricing Supplement that the ETNs are unsuitable for
any investment period longer than a single day. Id. at 106.
Second, a subclass of Plaintiffs that purchased TVIX ETNs during a period
in which Credit Suisse had suspended new issuances alleges that the offering
documents and February Press Release omitted material information regarding
the risk of purchasing TVIX ETNs during the suspension period. However, the
Pricing Supplement and Press Release explained Credit Suisse’s complete
discretion over the issuance or nonissuance of new ETNs and that the temporary
suspension of new issuances might cause the ETN’s market value to trade at
values that differed significantly from the ETN’s indicative value. No reasonable
investor could have read these materials without realizing the risk inherent in
purchasing TVIX ETNs at inflated prices in the secondary market during the
suspension period.
“To establish section 15 liability, a plaintiff must first show a primary
violation of section 11. Having affirmed the dismissal of Plaintiffs’ section 11
claims, we also affirm the dismissal of their section 15 claims.” Id. at 108
(citations and alterations omitted).
5
We have considered all of Plaintiffs’ arguments and find them to be
without merit. Accordingly, for the reasons set forth above, the judgment of the
district court is AFFIRMED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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