Opinion
21-CV-2223 (GHW) (KNF)
11-30-2021
UMASHANKAR RAVI AND SARITHA RAVI, Plaintiffs, v. CITIGROUP GLOBAL MARKETS HOLDINGS INC, Defendant.
REPORT AND RECOMMENDATION
KEVIN NATHANIEL FOX,, UNITED STATES MAGISTRATE JUDGE
TO THE HONORABLE GREGORY H. WOODS, UNITED STATES DISTRICT JUDGE
BACKGROUND
The plaintiffs, proceeding pro se, allege that Citigroup Global Markets Holdings Inc. (“CGMHI”)
was the issuer of the two now liquidated & defunct stock as shown in Exhibit A symbol UWT advertised by defendant as Velocity Shares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER New and faithfully tracked that index for months. [T]hey were advertised to track for months, investor stockholders (aka “public at large”) such as plaintiffs built reliable trust in both stocks performing as advertised. However as detailed below, on March 19, 2020, it under tracked the index by over 50 percentage points, causing a nearly 90% loss for UWT stockholders because the fraudulent tracking was at a time when the price of oil was at a historic low and forcing stockholders to sell them after noticing the acute blatant fraud or sell shortly after as the massive drop mandated the liquidation shortly after. Plaintiffs were holding them thinking that fraud was by mistake and CGHMI will correct the fraud but that didn't happen but liquidated. This caused plaintiffs losing about 95% or more. As detailed below, the timing of the fraud coincided exactly TO THE DAY of the NY Governor's order starting the reduction of personnel of non-essential businesses of 50% on March 18 increasing to 100% on March 20, preventing all victims from filing in their home states for all states except NY.
The plaintiffs assert in paragraph 2 of the amended complaint that the “UWT stock prospectus”
states from the very start for UWT “VelocityShares™ 3x Long Crude Oil ETNs linked to the S&P GSCI® Crude Oil Index ER” and for DWT “VelocityShares TM 3x Inverse Crude Oil ETNs linked to the S&P GSCI® Crude Oil Index ER” and these same stock descriptions are shown in Exhibit A. Plaintiffs details in paragraph 4 below that the quotations above grossly became untrue statements of facts using simple math.
In paragraph 4 of their amended complaint, the plaintiffs allege:
Attached Exhibit B shows that on March 19, index stated above rose 24.39%. As mentioned in paragraph above, UWT is advertised in its symbol description as "Velocity Shares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER New". So "3x" would mean that UWT should have rose 24.39% times 3 equaling 73.17%. But as shown in Exhibit A, on March 19 UWT only increased 23% - a massive 50 percentage point shortfall never corrected for and that impacted the subsequent days and ended up in liquidation. Exhibit C shows a screenshot of all the transactions made by the plaintiffs for only the stock UWT, omitting transactions in other stocks not related to this case for simplification, showing a loss from UWT totaling $ 371, 196.05 (listed as compensatory damages below). Exhibit D is plaintiff's official March 2020 brokerage statement for confirming all the transactions in the simplified Exhibit C.
The plaintiffs further allege:
As stated in paragraph 2 above, UWT had faithfully tracked the index as advertised correctly in real time for months, so obviously defendant used a simple computer program in those months to ensure that if the price of either stock started deviated from the price it should have been to follow the index, the computer would automatically buy or sell enough stock to bring the price to where it should be so that the index was followed correctly. Computer programs don't change on their own - a human that had access to the defendant's software must have chosen to change it. Intentional human interference, thus "intentional egregious harm to the plaintiffs and public at large (all stockholders)". And this change was made on March 19, 2020 as previously stated that the stock UWT grossly under-tracked the index it was advertised to track.
The plaintiffs seek compensatory and punitive damages.
By an order dated May 11, 2021, the assigned district judge: (i) denied the defendant's request for a pre-motion conference on its anticipated motion to dismiss; (ii) directed the plaintiffs to file an amended complaint, warning that “[t]his will be Plaintiffs' last opportunity to amend the complaint in response to arguments raised in the parties' letters”; and (iii) directed the defendant that, “[i]f Plaintiff files an amended complaint, Defendant's motion should be addressed to that complaint.” Docket Entry No. 18. Before the Court is the defendant's motion to dismiss the amended complaint, “pursuant to Federal Rules of Civil Procedure 8(a), 9(b), and 12(b)(6), ” opposed by the plaintiffs.
DEFENDANT'S CONTENTIONS
The defendant contends that the plaintiffs “are investors who purchased certain exchange traded notes issued by CGMHI-the Velocity Shares 3x Long Crude Oil ETNs-in the secondary market (the ‘UWT ETNs')” and they attempt “to manufacture a common law fraud to recoup investment losses they allegedly sustained when the UWT ETNs were redeemed by CGMHI as authorized by the UWT ETNs' governing prospectus pricing supplement (the ‘Pricing Supplement'), ” which is referenced in the complaint. The defendant argues the complaint should be dismissed because it: (1) “fails to identify any misrepresentation regarding the UWT ETNs, much less with the particularity required by Federal Rule of Civil Procedure 9(b)”; (2) “alleges no facts to suggest that CGMHI acted with fraudulent intent”; (3) “fails to allege that Plaintiffs acted in reliance on a purported misrepresentation by CGMHI”; (4) “fails to allege that CGMHI caused Plaintiffs' losses”; and (5) seeks punitive damages, which “are not available for ordinary common law fraud claims.” In addition, the defendant contends that “the allegations of the Complaint foreclose a viable” claim pursuant to Section 11 of the Securities Act of 1933. According to the defendant:
Pursuant to the Pricing Supplement, two valuations of the UWT ETNs are completed on a regular basis: Closing Indicative Value and Intraday Indicative Value. The Pricing Supplement refers to the Closing Indicative Value and the Intraday Indicative Value collectively as “Indicative Value.” (Id. at 17.) Indicative Value is not a trading price. Trading prices are “market-determined” prices (id. at
16) at which investors transact in the secondary market for the UWT ETNs. As the Pricing Supplement states:
The trading price of the ETNs in the secondary market is not the same as the Indicative Value of the ETNs at any time, even if a concurrent trading price in the secondary market were available at such time. The trading price of any series of the ETNs at any time may vary significantly from the Indicative Value of such ETNs at such time because the market value reflects investor supply and demand for the ETNs. (Id. at 18; see also Id. at 16 (the Closing Indicative Value is “not the same as the trading price of the ETNs”).)
. . . The first page of the Pricing Supplement discloses in bold font that the ETNs could be unsuitable for investors who intend to hold them for longer than a day. It states:
The ETNs are riskier than securities that have intermediate- or longterm investment objectives, and may not be suitable for investors who plan to hold them for a period other than one day. Any decision to hold the ETNs for more than one day should be made with great care and only as the result of a series of daily (or more frequent) investment decisions to remain invested in the ETNs for the next one-day period. Accordingly, the ETNs should be purchased only by knowledgeable investors who understand the potential consequences of an investment linked to the Index and of seeking daily compounding leveraged long . . . investment results ....
(Id. at 1 (emphasis omitted).) The Pricing Supplement further warns that the UWT “ETNs are highly speculative and highly risky and are suitable only for sophisticated investors who understand and can bear the risks associated with 3 times magnified losses resulting from adverse movements in the daily performance of the Index.” (See id. at 29.) The Pricing Supplement discloses additional risk factors specifically related to the volatility of the crude oil markets that could adversely impact the trading prices and redemption values of the UWT ETNs. The disclosures state:
• the “Index may be more volatile and will be more susceptible to fluctuations in the price of a single commodity than a broader commodities index” (id. at 46 (emphasis in original)); and
• “[i]n the event of sudden disruptions in the supplies of1 oil, such as those caused by war, natural events, accidents or acts of terrorism, prices of oil futures contracts could become extremely volatile and unpredictable.” (id. at 47).
Because the Index tracked futures contracts on a single commodity (crude oil), the Pricing Supplement further warns that the UWT ETNs “could experience greater volatility” than other investments and bore the “risks of a highly concentrated investment.” (Id. at 46.)
The defendant asserts that the complaint does not specify a single fraudulent statement by the defendant; rather, the plaintiffs allege that the Pricing Supplement's “alleged advertisement was false because the trading prices for the UWT ETNs did not track the Index on March 19, 2020.” However, the Pricing Supplement expressly warns that trading prices for the UWT ETNs were determined by the market and not the defendant and could vary and be influenced “by many unpredictable factors.” The plaintiffs concede that, at the time of the alleged fraud, the price of oil was at an “historic low” and the world was in the midst of a global pandemic. The defendant maintains that the plaintiffs fail to plead scienter.
The Complaint alleges in a conclusory manner that, before March 19, 2020, “obviously” CGMHI used a computer program “to ensure that if the price of [the UWT ETNs] . . . deviated from the price it should have been to follow the index, the computer would automatically buy or sell enough stock (sic) to bring the price where it should be.” (Compl. ¶ 6.) Plaintiffs further hypothesize that: “a human that had access to the defendant's software must have chosen to change it [...] And this change was made on March 19, 2020.” (Id.) These allegations are speculative at best, not factual, and fail to plausibly plead scienter.
Furthermore, the plaintiffs fail to plead that they did anything in reliance on the defendant, as they took no action on the alleged fraud, holding “their UWT ETMNs until April 3, 2020 when CGMHI redeemed them, as it was authorized to do ‘at any time' under the Pricing Supplement.” No allegations exist regarding the acceleration or redemption process. The defendant asserts that nothing exists to connect the alleged fraud occurring on March 19, 2020, to any loss the plaintiffs sustained because:
(i) the Pricing Supplement forecloses Plaintiffs' suggestion that CGMHI was involved in determining the trading prices for UWT ETNs in the secondary market; and (ii) the documents annexed to the Complaint show that Plaintiffs did not sell their UWT ETNs at the prevailing trading prices on March 19, 2020, but instead held them until redemption. Moreover, the Complaint concedes the lack of a nexus between the alleged fraud and Plaintiffs' losses by alleging that, on March 19, 2020, the “price of oil was at a historic low” (Compl. ¶ 3) and the world was in a state of “emergency” due to the COVID-19 pandemic (id. ¶ 6).The defendant contends that punitive damages requested by the plaintiffs are not available “in ordinary fraud claims” and the request should be stricken as a matter of law; furthermore, no facts are alleged justifying punitive damages.
To the extent that the plaintiffs purport to allege a claim under Section 11 of the Securities Act of 1933, it is foreclosed because no misleading statement or omission is alleged in the UWT ETN's registration statement, Pricing Supplement or elsewhere. The plaintiffs' allegation that the Prancing Supplement “became untrue” vitiates any Section 11 claim because they do not allege that the Pricing Supplement or any portion of the registration statement was misleading at the time it became effective. Moreover, the plaintiffs lack standing to assert a Section 11 claim because they do not allege that their purchases of UWT ETNs are traceable to any registration statement or other offering document, and all the UWT ETN's for which the plaintiffs claim damages were purchased on February 5, 2020, more than one month before the March 18, 2020 Pricing Supplement was issued and cannot be traced to it. The plaintiffs' assertion that punitive damages are warranted is inconsistent with a Section 11 claim. In support of the motion, the defendant submitted Exhibit A, “the Pricing Supplement No. 2016--USNCH0277/A/10± and 2016--USNCH0278/A/10± Dated March 18, 2020 (To Prospectus Supplement and Prospectus Each Dated May 14, 2018) Medium-Term Senior Notes, Series N, issued by Citigroup Global Markets Holdings Inc.”
PLAINTIFFS' CONTENTIONS
The plaintiffs contend:
CGMHI claims that the pricing supplement explains that UWT ETNs' trading prices are “market determined” and further warns that those trading prices could “vary significantly” from the indicative value of the UWT ETNs based on the Index. Unfortunately for CGHMI, “market determined” does not mean “fraud determined”. Market would imply the variability of S&P GSCI Crude Oil Index ER, which did vary significantly during Covid, not the variability of CGHMI's
tracking of this variable Index. CGHMI was required to track this variable index by 3X. Furthermore, “market determined” is the fraction of 1% deviation caused by buyers and sellers in the fraction of a second before another buyer or seller can be found by the software to bring the price back to the fraction of 1% where it should be per stock description.
Concerning fraudulent intent, the plaintiffs assert:
CGMHI claims that PLAINTIFF cannot prove that CGMHI had criminal intent. CGMHI's DWT & UWT followed the S&P GSCI Crude Oil Index ER and each other with an error of less than one percentage point for 850 trading days prior to March 18, 2020. To achieve this level of accuracy, CGMHI had sophisticated computer programs tracking the index and buying and selling shares when needed to maintain a correlation to the Index. CGHMI stopped tracking the Index on March 18th showing that they knowingly, criminally intended modified their computer programs to buy and sell shares to track the index.
Regarding the defendant's tracking, the plaintiffs maintain as follows:
CGHMI was tracking the UWT with Oil Index as per the prospects continuously for 850 trading days from the inception until March 19 th . Doc 64 of the complaint 1:20-cv-07619-ALC (SDNY) the plaintiff Mr. Kirk shows the calculations on the fraud that 80% of loss for those sold on first two days of fraud and increased to 98% loss for those who held until liquidation April 3, 2020, which included four additional days of gross fraudulent under tracking of the index after March 19, 2020. When CGHMI misrepresented the tracking on March 19, I was under the impression that was an error and would be adjusted later by CGHMI. I did not believe this to be fraud until a couple of months after the incident. If I was aware on March 19, I would have acted then. I did not expect a company like CGHMI to take part in manipulation.... CGMHI claims that this was due to the financial markets impact by COVID-19 pandemic. While COVID-19 impacted the financial markets, this does not permit CGMHI to deviate from selling the product as it was marketed and described in its prospectus. CGMHI gives numerous examples of how its prices track the Index but did not describe variance due to market volatility in such examples. Many companies suffered losses during this time but did not commit fraud to protect their own financial interests. Plaintiffs continues to assert that CGMHI had a duty to follow the Index. Low oil prices are completely irrelevant to UWT grossly under tracking the oil index. CGMHI's actions caused the plaintiffs losses and harm to its ETN's subscribers.
With respect to damages, the plaintiffs contend:
CGMHI dismisses PLAINTIFF's request for damages for CGMHI's fraudulent misrepresentation of product it was selling. Defendant claims that punitive damages are not available in ordinary fraud claims. Plaintiffs is not claiming that this is
“ordinary” fraud; Plaintiff is claiming that this is egregious fraud. AsWhile the compensatory damages for group of UWT subscribers who filed cases against CGMHI only totals $3 million in compensatory damages, CGMHI UWT ETN holders loss over $159 million from this fund as calculated in Kirk's Case 1:20-cv-07619-ALC in doc 22 paragraph 10 and doc 26 paragraph 5. This is EGREGIOUS fraud, not ordinary.
The plaintiffs argue that the defendant's interpretation of Section 11 is narrow, but district courts in this circuit “hold that general allegations of standing are sufficient” and the plaintiffs “need only assert that they purchased shares ‘issued pursuant to, or traceable to the public offerings.'”
The UWT stock prospectus states from the very start for UWT “VelocityShares™ 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER”. Such stock description means that from the initial offering, Defendant guaranteed the stock price to reflect such price and the only logical way it could guarantee such would be to ensure Defendant bought or sold enough shares on a real time basis to bring the stock price to the advertised amount. Thus, such stock description promised continual and ongoing secondary offerings every day on a real time basis at the advertised price. None of the citations listed by CGHMI include such implication of promised ongoing offerings.
DEFENDANT'S REPLY
The defendant asserts that the plaintiffs failed to address their argument that the complaint does not identify any alleged misstatement or omission concerning the UWT ETNs.
Moreover, in the absence of identifying any misstatement or omission, the Opposition attempts to manufacture new “obligations” mentioned nowhere in the Pricing Supplement. It argues that CGMHI was obligated to “guarantee” the trading prices for the UWT ETNs in the secondary market by “buying and selling shares when needed to maintain a correlation to the Index.” (Opp. Br. ¶¶ 2, 6.) But there is nothing in the Pricing Supplement that obligates CGMHI to buy or sell UWT ETNs in the secondary market. To the contrary, and as set forth in the Opening Brief, the Pricing Supplement states that CGMHI is “under no obligation to issue or sell additional ETNs of any series at any time” and that CGMHI is “under no obligation to issue additional ETNs to increase the supply.” (Id. at 4, 38 (emphases added).)
According to the defendant, no facts alleged in the complaint support a claim that the defendant engaged in the type of morally reprehensible conduct justifying punitive damages. The plaintiffs also did not address their failure to plead a Section 11 claim.
LEGAL STANDARD
A party may assert, by motion, the defense of “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6).
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007)).Conclusory allegations that a defendant has violated standards of law do not satisfy the need for plausible factual allegations. See Kirch v. Liberty Media Corp., 449 F.3d 388, 398 (2d Cir. 2006) (citing Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002)). On a motion pursuant to Rule 12(b)(6), all facts alleged in the complaint are assumed to be true and all reasonable inferences are drawn in the plaintiff's favor. See Interpharm, Inc. v. Wells Fargo Bank, Nat'l Ass'n, 655 F.3d 136, 141 (2d Cir. 2011). “It is well established that the submissions of a pro se litigant must be construed liberally and interpreted ‘to raise the strongest arguments that they suggest. '” Triestman v. Fed. Bureau of Prisons, 470 F.3d 471, 474 (2d Cir. 2006).
To establish a prima facie case for fraud, plaintiffs would have to prove that “(1) defendant made a representation as to a material fact; (2) such representation was false; (3) defendant[ ] intended to deceive plaintiff; (4) plaintiff believed and justifiably relied upon the statement and was induced by it to engage in a certain course of conduct; and (5) as a result of such reliance plaintiff sustained pecuniary loss.”
Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 488, 836 N.Y.S.2d 509, 515 (2007) (citation omitted).
“In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b).
Section 11 of the Securities Act of 1933 (“Section 11”) provides for a private right of action as follows:
In case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring such security (unless it is proved that at the time of such acquisition he knew of such untruth or omission) may, either at law or in equity, in any court of competent jurisdiction, sue-
(1) every person who signed the registration statement;
(2) every person who was a director of (or person performing similar functions) or partner in the issuer at the time of the filing of the part of the registration statement with respect to which his liability is asserted;
(3) every person who, with his consent, is named in the registration statement as being or about to become a director, person performing similar functions, or partner;
(4) every accountant, engineer, or appraiser, or any person whose profession gives authority to a statement made by him, who has with his consent been named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement in such registration statement, report, or valuation, which purports to have been prepared or certified by him;
(5) every underwriter with respect to such security.
If such person acquired the security after the issuer has made generally available to its security holders an earning statement covering a period of at least twelve months beginning after the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such omission, but such reliance may be established without proof of the reading of the registration statement by such person.
15 U.S.C.A. § 77k(a).
To establish a prima facie claim under Section 11, “the plaintiff must allege that: (1) she purchased a registered security, either directly from the issuer or in the aftermarket following the offering; (2) the defendant participated in the offering in a manner sufficient to give rise to liability under section 11; and (3) the registration statement ‘contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.' ” In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358-59 (2d Cir. 2010) (quoting 15 U.S.C. § 77k(a)). The Second Circuit in Rombach held that “while a plaintiff need allege no more than negligence to proceed under Section 11 ..., claims that do rely upon averments of fraud are subject to the test of Rule 9(b).” 355 F.3d at 171. Where the complaint does not allege that the defendants “affirmatively knew [of the omitted fact] and chose to conceal it” and asserts only that such information was available to the defendants, Rule 8 applies. . . . Where “the risks of which plaintiffs complained were disclosed in the prospectus”-i.e., where a “reasonable investor” was informed “about the nature of the securities”-dismissal of the claims under Rule 12(b)(6) is appropriate.
In re Weight Watchers Int'l Inc. Sec. Litig., 504 F.Supp.3d 224, 243-44 (S.D.N.Y. 2020) (citations omitted).
Section 12(a)(2) of the Securities Act of 1933 (“Section 12(a)(2)”) provides:
Any person who--. . . (2) offers or sells a security (whether or not exempted by the provisions of section 77c of this title, other than paragraphs (2) and (14) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable, subject to subsection (b), to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.
(b) Loss causation
In an action described in subsection (a)(2), if the person who offered or sold such security proves that any portion or all of the amount recoverable under subsection (a)(2) represents other than the depreciation in value of the subject security resulting from such part of the prospectus or oral communication, with respect to which the liability of that person is asserted, not being true or omitting to state a
material fact required to be stated therein or necessary to make the statement not misleading, then such portion or amount, as the case may be, shall not be recoverable.
15 U.S.C.A. § 77l(a)(2).
[T]he elements of aprimafacie claim under section 12(a)(2) are: (1) the defendant is a “statutory seller”; (2) the sale was effectuated “by means of a prospectus or oral communication”; and (3) the prospectus or oral communication “include[d] an untrue statement of a material fact or omit[ted] to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.” 15 U.S.C. § 77 l (a)(2).
In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 (2d Cir. 2010).
An individual is a “statutory seller”-and therefore a potential section 12(a)(2) defendant-if he: (1) “passed title, or other interest in the security, to the buyer for value, ” or (2) “successfully solicit[ed] the purchase [of a security], motivated at least in part by a desire to serve his own financial interests or those of the securities ['] owner.”Id. (citations omitted).
APPLICATION OF LEGAL STANDARD
Common Law Fraud
The plaintiffs failed to allege, as they must under New York law, that, with intent to deceive the plaintiffs, the defendant made a representation of a material fact that was false, which the plaintiffs believed and on which they justifiably relied and were induced by it to engage in a certain course of conduct. See Ross, 8 N.Y.3d at 488, 836 N.Y.S.2d at 515. The plaintiffs' conclusory allegations of fraudulent tracking are contradicted by their allegations that “UWT [was] advertised by defendant as Velocity Shares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER New and faithfully tracked that index for months.” Thus, according to the plaintiffs' own allegations, the defendant advertised UWT, “faithfully tracked” the related index “for months, ” and UWT performed “as advertised.” The plaintiffs allege that, on March 19, 2020, an unidentified person who had access to the defendant's “software” intentionally made a change to it, causing UWT to under-track the index “by over 50 percentage points” and the “plaintiffs [to lose] about 95% or more.” However, the plaintiffs' conclusory allegations, that the defendant's tracking was fraudulent because an unidentified person intentionally changed the defendant's software on March 19, 2020, do not suffice to satisfy: (1) the standard under Rule 9(b) of the Federal Rules of Civil Procedure; and (2) the elements of common law fraud under New York. Accordingly, the plaintiffs failed to state a cause of action for common law fraud under New York law.
Securities Act of 1933 Claims
The plaintiffs allege that: (a) the UWT prospectus “states from the very start for UWT “VelocityShares™ 3x Long Crude Oil ETNs linked to the S&P GSCI® Crude Oil Index ER”; (b) “UWT had faithfully tracked the index as advertised correctly in real time for months”; (c) “a human that had access to the defendant's software must have chosen to change it”; and (d) “this change was made on March 19, 2020 as previously stated that the stock UWT grossly undertracked the index it was advertised to track.” Assuming they have standing and to the extent that the plaintiffs attempt to make a claim under Sections 11 or 12(a)(2) of the Securities Act of 1933, their claims under Sections 11 and 12(a)(2) of the Securities Act of 1933 must be dismissed because the plaintiffs failed to allege that the defendant's prospectus offering investment securities to the public contained any materially false or misleading statements or omissions. The plaintiffs' conclusory allegations, that the defendant's tracking was fraudulent because an unidentified person intentionally changed the defendant's software on March 19, 2020, do not suffice to satisfy: (1) the standard under Rule 9(b) of the Federal Rules of Civil Procedure; (2) the elements of the Section 11 claim; and (3) the elements of the Section 12(a)(2) claim. Accordingly, the plaintiffs failed to state a claim pursuant to Section 11 and Section 12(a)(2) of the Securities Act of 1933.
The May 11, 2021 order directed the plaintiffs to file an amended complaint, warning that “[t]his will be Plaintiffs' last opportunity to amend the complaint in response to arguments raised in the parties' letters.” The plaintiffs proceeding pro se failed to correct the deficiencies in their complaint when they filed their amended complaint pursuant to the May 11, 2021 order, despite the warning that “[t]his will be Plaintiffs' last opportunity to amend the complaint in response to arguments raised in the parties' letters.” Accordingly, no basis exists to amend the complaint at this stage.
RECOMMENDATION
For the foregoing reasons, I recommend that the defendant's motion to dismiss, Docket Entry No. 22, be granted.
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court. Any requests for an extension of time for filing objections must be directed to Judge Woods. Failure to file objections within fourteen (14) days will result in a waiver of objections and will preclude appellate review. See Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466 (1985); Cephas v. Nash, 328 F.3d 98, 107 (2d Cir. 2003).