## Facts

- Investors filed a putative class action against UBS AG (a foreign issuer), certain officers and directors, and underwriters.
- UBS shares traded on foreign exchanges and were also cross-listed on the New York Stock Exchange.
- Plaintiffs alleged UBS misrepresented or omitted material information about: (1) exposure to and valuation of mortgage-related assets, and (2) participation in U.S. cross-border tax evasion practices.
- Some plaintiffs also purchased securities in a June 13, 2008 registered rights offering and challenged statements in the offering materials.
- Claims asserted included Exchange Act § 10(b) and Rule 10b-5 (and control-person claims), and Securities Act §§ 11 and 12(a)(2) (and control-person claims) related to the rights offering.
- The district court dismissed all claims with prejudice, holding that foreign-exchange purchases were barred under Morrison, the rights-offering statements were immaterial and/or puffery, and remaining fraud claims were not adequately pleaded as to misstatement and scienter.

## Issues

1. Whether purchasers of a foreign issuer’s shares on foreign exchanges may bring § 10(b) claims when the shares are also cross-listed on a U.S. exchange (the “listing theory”).
2. Whether the rights-offering materials stated actionable Securities Act claims based on alleged misstatements or omissions.
3. Whether remaining Exchange Act claims adequately pleaded materially false or misleading statements and a strong inference of scienter regarding mortgage-related disclosures and tax-related conduct.

## Decision

- The Second Circuit affirmed dismissal of all claims with prejudice.
- The court held Morrison bars § 10(b) claims for purchases on foreign exchanges even if the securities are cross-listed on a U.S. exchange; the “listing theory” was rejected.
- The Securities Act claims based on the 2008 rights offering were dismissed because the challenged statements were immaterial and/or inactionable puffery.
- Remaining Exchange Act claims were dismissed for failure to plead a material misrepresentation and failure to plead scienter under the PSLRA.

## Legal Principles

- Under Morrison’s transactional test, § 10(b) applies only to (1) transactions in securities listed on domestic exchanges and (2) domestic transactions in other securities; cross-listing does not convert foreign-exchange trades into domestic transactions.
- General statements of corporate optimism, broad assurances of risk controls, and similarly vague statements are often immaterial and constitute inactionable puffery.
- To plead securities fraud, plaintiffs must allege specific materially false or misleading statements or omissions; generalized statements about risk or strategy typically do not suffice.
- Scienter must be pleaded with particularized facts supporting a strong inference of intent to deceive or recklessness; the size of later losses or hindsight allegations about risk-taking are insufficient.

## Conclusion

The Second Circuit held that § 10(b) does not reach foreign-exchange transactions in a foreign issuer’s shares merely because those shares are cross-listed in the United States, and it affirmed dismissal of related Securities Act and Exchange Act claims where the alleged misstatements were immaterial or puffery and where scienter was not adequately pleaded.


City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014)