Dianat v. Credit Suisse Grp. AG

1

ALI DIABAT, individually and on behalf of all others similarly situated, Plaintiff, v. CREDIT SUISSE GROUP AG, et al., Defendants.

Nos. 23 Civ. 5874 (CM), 23 Civ. 6023 (CM), 23 Civ. 6039 (CM)

United States District Court, S.D. New York

September 19, 2024

DECISION AND ORDER DISPOSING OF PENDING MOTIONS TO DISMISS

McMahon, J.

In the wake of Credit Suisse's March 2023 collapse, Lead Plaintiff Ali Diabat (“Plaintiff'), has brought this lawsuit on behalf of himself and a class of similarly situated persons or entities -other than the defendants - who purchased or otherwise acquired Credit Suisse Group AG (“Credit Suisse” or the “Bank” or the “Company”) securities in domestic transactions from April 6, 2021 through March 20, 2023, inclusive (the “Class Period”). By way of a 214-page 484-paragraph Consolidated Amended Class Action Complaint (the “Complaint”), Plaintiff alleges that the following individuals and entities violated federal securities laws by making false and/or misleading statements about Credit Suisse's operations: Credit Suisse's auditor PricewaterhouseCoopers AG (“PwC AG”) Credit Suisse itself; and Credit Suisse Officers and/or Directors Axel P. Lehmann, Ulrich Korner, Dixit Joshi Antonio Horta-Osorio, Thomas Gottstein, and David R. Mathers (the “Individual Defendants ” together with Credit Suisse, the “Credit Suisse Defendants,” and collectively, the “Defendants”). Dkt. No. 65. Specifically, Plaintiff asserts a claim against all of the Defendants pursuant to Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) (15 U.S.C. § 78j(b)), and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. § 240.10b-5), and a claim against the Individual Defendants under Section 20(a) of the Exchange Act (15 U.S.C. § 78t(a)).

All Defendants have moved to dismiss the Complaint on numerous grounds. For the reasons set forth below, PwC AG's motion is granted, as are the motions by Individual Defendants Gottstein, Horta-Osorio, and Mathers. The motions by Credit Suisse and Individual Defendants Joshi, Korner, and Lehmann are granted in part and denied in part. Leave to amend, for reasons that will become apparent, is denied as futile.

BACKGROUND

The facts below are taken from the Complaint and assumed to be true for purposes of this motion. The Court also considers statements or documents incorporated into the Complaint by reference and legally required public disclosure documents filed with the Securities and Exchange Commission. See Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S 308, 322 (2007).

I. The Parties

a. Plaintiff

Lead Plaintiff Professor Ali Diabat, a resident of Jordan and a lawful permanent resident of the United States, brings this securities class action on behalf of persons or entities who purchased or otherwise acquired Credit Suisse securities in domestic transactions during the Class Period - from April 6, 2021 through and including March 20, 2023.^[1] Compl. ¶¶ 2, 30, 369; Exs. 1-2 to Dkt. No. 65.

Plaintiff states that, when purchasing or otherwise acquiring Credit Suisse securities, he and the other members of the proposed Class relied on: (1) the false and misleading public statements made by Defendants during the Class Period; (2) the integrity of the market price of the Company's securities during the Class Period; and (3) market information related to Credit Suisse. Compl. ¶¶ 344, 476. Plaintiff claims that the proposed Class was damaged “when the truth was revealed and the artificial inflation was removed from the price of the securities,” resulting in the cratering of Credit Suisse's ADS price - from $10.97 per ADS at the close of trading on April 6, 2021 to $0.9450 per ADS on March 20, 2023. Id. ¶¶ 30, 369. Plaintiff considers the steep decline in price to be “a direct result of the nature and extent of Defendants' fraud finally being revealed to investors and the market,” id. ¶ 371; therefore, he seeks to recover compensable damages caused by Defendants' alleged violations of the federal securities laws under the Exchange Act. Id. ¶ 30.

b. Defendants

i. Credit Suisse

Credit Suisse was, until June 12, 2023, a global financial services company based in Zurich, Switzerland and organized under the laws of Switzerland. Id. ¶¶ 3, 31-32. On that date, at the behest of the Swiss Federal Department of Finance, the Swiss National Bank (“SNB”), and the Swiss Financial Market Supervisory Authority (“FINMA”), Credit Suisse merged with and into UBS Group AG (“UBS”), a different Swiss bank, and ceased to exist. Id. ¶¶ 1, 4, 18, 31, 367, 373.

Prior to Credit Suisse's dissolution, Credit Suisse was one of Switzerland's two largest and best-known banking corporations. During the Class Period, the Company operated through four divisions: Asset Management, Investment Bank, Swiss Bank, and Wealth Management. Id. ¶ 31. Credit Suisse's American Depository Shares (“ADSs”) were listed and traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “CS,” and its bonds traded worldwide. Id. ¶¶ 3, 32.

ii. Credit Suisse Individual Defendants

Plaintiff names six former Credit Suisse Directors and/or Officers as Individual Defendants in the Complaint: Axel P. Lehmann, Chairman of the Credit Suisse Board of Directors (the “Board”) from January 2022 until June 2023; Ulrich Korner, Credit Suisse's Chief Executive Officer from August 2022 until June 2023; Dixit Joshi, Credit Suisse's Chief Financial Officer from October 2022 until June 2023; Antonio Horta-Osorio, Chairman of the Board from April 2021 until January 2022; Thomas Gottstein, Credit Suisse's Chief Executive Officer from February 2020 until July 2022; and David R. Mathers, Credit Suisse's Chief Financial Officer from October 2010 until August 2022. Id. ¶¶ 33-38.

Plaintiff claims that the Individual Defendants, by virtue of their high-level and controlling positions at Credit Suisse, directly participated in the management of the Company, were directly involved in the day-to-day operations of the Company at the highest levels, and were privy to confidential proprietary information about the Company, its business, operations, internal controls, growth, financial statements, and financial condition. Id. ¶ 460. Plaintiff asserts that the material misstatements conveyed to the public were the result of the actions, individually and in concert, of the Individual Defendants, as they were responsible for the accuracy of and content within Credit Suisse's SEC filings, press releases, presentations, and other public statements during the Class Period. Id. ¶¶ 430, 460, 463.

iii. PwC AG

PwC AG, an international accounting and consulting firm, was Credit Suisse's independent auditor throughout the Class Period. Id. ¶ 40. Public companies retain audit firms like PwC AG as independent auditors to determine whether the company's financial statements were prepared in accordance with the Generally Accepted Accounting Principles (“GAAP”), a common set of accounting rules, standards, and procedures issued by the Financial Accounting Standards Board (“FASB”). Id. ¶¶ 20, 308. If a public company's financial statements do not comply with GAAP, it may be required to restate its financial statements. Id. ¶ 20. Audits of public companies are overseen by the Public Company Accounting Oversight Board (“PCAOB”), a nonprofit corporation created by the Sarbanes-Oxley Act of 2002 (“SOX”). Id. ¶¶ 20-21. The PCAOB is responsible for establishing the generally accepted auditing standards (“GAAS”), which are professional standards to which auditors are required to adhere. Id. ¶ 21.

On April 30, 2020, during Credit Suisse's Annual General Meeting of Shareholders (“AGM”), Credit Suisse shareholders voted to approve the Credit Suisse's Board of Directors' proposal that PwC AG succeed the Company's then-auditor, KPMG AG (“KPMG”). Id. ¶ 19. PwC AG's appointment as Credit Suisse's auditor became effective for the fiscal year ending on December 31, 2020. Id. Credit Suisse engaged PwC AG to perform the following services: to provide independent auditing, accounting, management consulting, and tax services; to examine and review filings with the SEC; and to provide audits and/or reviews of financial statements included in Credit Suisse's SEC filings and annual reports. Id. ¶ 40. Credit Suisse paid PwC AG approximately $231.3 million for its work on Credit Suisse's 2020, 2021, and 2022 audits. Id. ¶¶ 8, 385.

II. Pre-Class Period Events

According to the Complaint, “Prior to the beginning of the Class Period on April 6, 2021, Credit Suisse had been rocked by a variety of high profile scandals.” Id. ¶ 4. Plaintiff repeatedly references two of those “high profile scandals” throughout the Complaint: (1) “the failure of Credit Suisse's funds structured in collaboration with UK-based financier Lex Greensill” (the “Greensill Funds”) in the first few months of 2021; and (2) the collapse of Archegos Capital Management (“Archegos”), “a hedge fund for which Credit Suisse had significant, undisclosed exposure,” which “forced Credit Suisse to incur substantial losses and reveal critical risk management and control governance failures in March 2021. Id.

On March 1, 2021, Credit Suisse's Asset Management division announced in a press release that it had “suspended redemptions and subscriptions of its Greensill Funds, previously valued at approximately USD $10 billion, over concerns that they were ‘subject to considerable uncertainties with respect to their accurate valuation.'” Id. ¶ 5. About one week after the press release, Greensill filed for bankruptcy. Id. It was later revealed that Credit Suisse was unable to recover approximately USD $3 billion of its customers' money from the Greensill Funds. Id.

Towards the end of March 2021, Credit...