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Posted: November 21, 2018

Stock Loan Lowdown: Is the Answer a Lemon?

Following the defeat of their motion to dismiss – you can review our riveting recap here – the Stock Loan Defendants each recently filed answers and affirmative defenses to the Amended Class Action Complaint. This brief post will take a look at the highlights of those answers and defenses, and provide a quick rundown of the current Case Management Order (“CMO”), filed on November 15th.

Now Requesting Answers on a Postcard

Ranging in length from 44 to 73 pages (pithiness points going to EquiLend), the contents of the seven filed answers demonstrate greater uniformity than that range would suggest. As would be expected, denials of allegations abound, as does the useful position of “lack [of] knowledge and information sufficient to form a belief” position.

Specific denials were made as regards statements by various officials of the Defendants: JPMorgan, for example, denies that John Shellard made statements attributed to him, including the comment confirming the existence of a “general agreement among Directors” of EquiLend, and “that industry advances should be achieved from within EquiLend.” Along the same lines, EquiLend denies that Brian Lamb stated that the goal of DataLend was to “kill” DataExplorers, while Morgan Stanley denies that their Gliobal Head of Bank Resource Management, Thomas Wipf, had stated that the institutions needed to “get a hold of this thing,” referring to AQS. On the other hand, with respect to the somewhat infamous (or, perhaps, as infamous as one can be within the world of stock loans) statement by Credit Suisse director Shawn Sullivan recommending that they “get all the members of the five families together,” Credit Suisse “admits that Plaintiffs purpose to quote certain communications . . . and refers to any such communication for their complete content and context.” Not that I envy the poor associate that will be doing the review, but it sounds as though there may be a few gems to be found in document discovery . . .

As far as defenses are concerned, JPMorgan, Credit Suisse, Goldman Sachs, UBS, and Merrill Lynch each raise affirmative defenses similar to the arguments made at the motion to dismiss level. These include items such as lack of standing; lack of or speculative and uncertain damages; failure to mitigate damages; statute of limitations, waiver, and estoppel; the nature of the alleged conduct as permissible competitive activity (a factor which Defendants point out that, despite it’s inclusion in their affirmative defenses, they view it as a factor for which Plaintiffs bear the burden of proof); the nature of the alleged conduct as pro-competitive activity; that none of the challenged actions or omissions substantially lessened competition within any properly defined market; that injuries to Plaintiffs, to the extent they exist, were caused by third parties and marketplace forces for which Defendants are not responsible; and a failure to plead fraudulent concealment with particularity. EquiLend presented a series of very similar affirmative defenses, but further added claims concerning lack of personal jurisdiction over EquiLend Europe Limited.

Under New Management

The Case Management Order now governing this matter requires all motions for joinder or to amend the pleadings be filed within three months. The ESI protocol is to be filed within thirty days, while initial request for production of documents are to be served by December 18, with a February 15, 2019, deadline for the parties to reach agreement or impasse on all issues related to the initial requests for production and custodians. Rolling production of documents is to begin late April, with substantial completion of document production to be accomplished by September 1, 2019. Is it too soon to make comments about “best laid plans”?

Fact discovery, including deposition of fact witnesses is currently set to close on May 1, 2020, while requests to admit are to be served by April 1, 2010. The class certification briefing schedule is also set for the same time frame – Plaintiffs’ opening motion and expert reports are due in March 2020, with the briefing schedule wrapping up with a reply due in September.

The Manipulation Monitor will continue to update the Stock Loan Lowdown series to report on any discovery disputes that may (will likely) arise, but we’ll otherwise be putting the stock loans stories to bed for the time being. For other magnetic tales of mischief in the markets, I’ll take a moment to recommend the Manipulation Monitor’s The VIX is Fixed?! series for those of you looking for your next read.

This post was written by Alexandra M.C. Douglas.

We welcome your feedback. If you have questions or comments about this post, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at jlundin@schlamstone.com or Alexandra M.C. Douglas at adouglas@schlamstone.com or call John or Alexandra at (212) 344-5400.

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