Sharette v. Credit Suisse International
United States District Court for the Southern District of New York
127 F. Supp. 3d 60 (2015)
- Written by Sharon Feldman, JD
Facts
Credit Suisse International and Credit Suisse Securities (USA) LLC (collectively, CS) (defendants) underwrote simultaneous offerings of the convertible notes and common stock of Energy Conversion Devices, Inc. (ECD). ECD made available to CS 3,444,975 common-stock shares for CS to use to facilitate the sale and hedging of the convertible notes. CS lent to hedge funds for short sales almost all the shares provided. The shares shorted after the offerings increased the short interest in ECD stock by 48 percent. As short sales rose, the price of ECD stock dropped from $72 to under $1 fewer than four years later. ECD went bankrupt, and investors suffered huge losses. Three former shareholders (the shareholders) (plaintiffs) brought a class action, alleging that CS misrepresented that CS would use the shares to promote convertible-note sales by assisting investors to hedge their positions, facilitated the manipulation of ECD’s stock price by lending out for nominal fees far more shares than necessary for hedging, and orchestrated the scheme so hedge funds could profit by short sales that sent ECD stock into a death spiral and CS could better compete for future hedge-fund business. CS moved to dismiss, arguing that the complaint failed to adequately allege the existence of manipulation, CS’s participation, scienter, and loss causation.
Rule of Law
Issue
Holding and Reasoning (Marrero, J.)
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