Kirk v. Citigroup Global Markets Holdings Inc.

Background

The defendant moved to dismiss the Fourth Amended Complaint under Federal Rules of Civil Procedure 12(b)(6) and 9(b). The plaintiff asserted claims under Sections 11 and 12(a)(2) of the Securities Act, Section 10(b) of the Exchange Act, and New York common law based on alleged fraud involving Velocity Shares 3x Long Crude Oil exchange-traded notes. The Fourth Amended Complaint added allegations that the notes failed to maintain an inverse relationship with the relevant index on additional dates.

Federal Securities Claims

The court held that, even accepting the additional allegations as true, they did not state a legally recognizable claim. The complaint did not identify any statement by the defendant representing that the notes would track three times the index every day throughout an investor’s holding period. The court also relied on its earlier conclusion, consistent with other decisions in the district, that the pricing supplement warned investors about the particular and heightened risks of investing in the notes.

Because the complaint did not identify a fraudulent statement, material misstatement, or omission, the court dismissed the federal securities claims for the same reasons stated in its September 29, 2023 order.

New York Common-Law Fraud Claim and Jurisdiction

The court found no basis for diversity jurisdiction over the state-law fraud claim. The plaintiff sought $52,440 in compensatory damages, which was below the $75,000 amount required for diversity jurisdiction. The court also rejected the punitive-damages request as a basis for satisfying that requirement. It stated that the alleged conduct did not amount to the moral or criminal indifference needed for punitive damages and that the requested punitive damages exceeded compensatory damages by more than 7,000 times. The court again declined to exercise supplemental jurisdiction over the state-law claim after dismissing the claims within its original jurisdiction.

The court further ruled that, even if it had subject-matter jurisdiction, the state-law claim was not legally sufficient. It explained that the elements of federal securities fraud and New York common-law fraud are identical in the relevant respects and that the plaintiff had not cured the failure to allege a false or fraudulent statement.

Disposition

The court concluded that the plaintiff had filed the Fourth Amended Complaint with the benefit of the documents previously requested and still had not stated a legally recognizable claim. Finding that further amendment would be futile, Judge Andrew L. Carter granted the defendant’s motion to dismiss with prejudice and directed the Clerk of Court to terminate the case.