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and documents cited in the Complaint—discussed above in the context of scienter—indicate that the Defendants
the alleged omissions, it would not have purchased the securities, or would not have purchased them at inflated pric-
es.
[32] Although Defendants argue that Dodona's losses coincided with the general market downturn and therefore
Hudson CDOs] and the financial markets in general, rather than a passive victim.” In re Ambac, 693 F.Supp.2d at
270; see In re Bear Stearns, 763 F.Supp.2d at 504–05 (citing In re Ambac, 693 F.Supp.2d at 269).
Dondona has made allegations sufficient to support a reasonable inference that the omissions “bear upon the
loss suffered such that [Dodona] would have been spared all or an ascertainable portion of that loss absent the
fendants manipulated the market for the Hudson CDOs in violation of § 10(b) and Rule 10b–5(a) and (c). The Com-
plaint alleges that they used “manipulative and deceptive devices and practices” when they structured, issued and
sold the Hudson CDOs with the belief that the Hudson CDO securities would not be profitable for investors, and the
knowledge that the Hudson CDOs were part of Goldman's subprime risk reduction strategy. (Compl. ¶ 165.)
[34] A claim for market manipulation cannot be based on a misrepresentation or omission alone, but must in-
100 (internal quotation marks omitted).
FN15. In contrast to the omission claim under Rule 10b–5(b), in the context of market manipulation under
Rule 10b–5(a) and (c), there is no need for Dodona to allege (or prove) that the Defendants had a duty to
disclose stemming from a statutory requirement or an otherwise misleading statement. Instead, a claim of
market manipulation involves “secret manipulation,” which need not include overt misleading statements.
ulative acts were performed, which defendants performed them, [and] when the manipulative acts were per-
formed....” Id. at 102 (“A claim of manipulation, however, can involve facts solely within the defendant's
knowledge; therefore, at the early stages of litigation, the plaintiff need not plead manipulation to the same degree of
specificity as a plain misrepresentation claim.”).
© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.
a. Reliance on Efficient Market Assumption
[35] However, in order for its market manipulation claim to survive Defendants' motions to dismiss, Dodona
must also allege “reliance on an assumption of an efficient market free of manipulation[.]” ATSI, 493 F.3d at 101;
see In re Parmalat Sec. Litig., 375 F.Supp.2d 278, 304 (S.D.N.Y.2005) (“ Parmalat I ”). Whether a market is effi-
cient is a question usually addressed when plaintiffs argue “fraud on the market,” which creates a rebuttable pre-
sumption of reliance where the market is efficient.FN16 Teamsters Local 445 Freight Div. Pension Fund v. Bom-
bardier, Inc., 546 F.3d 196, 199–200 (2d Cir.2008) (citing Basic, 485 U.S. at 242–49, 108 S.Ct. 978). In ATSI, the
Second Circuit essentially incorporated “fraud on the market” into the standard for market manipulation by requiring
that plaintiffs show “reliance on an assumption of an efficient market.” ATSI, 493 F.3d at 99–103,
I, 375 F.Supp.2d at 304 (internal citations and quotation marks omitted). In addition, there is some case law in this
Circuit to suggest that claims of market manipulation involving newly issued securities must fail because primary
markets are by nature inefficient. See In re Initial Public Offerings Sec. Litig., 471 F.3d 24, 42–43 (2d Cir.2006)
(holding that market for shares of an initial public offering is not efficient, in the context of fraud on the market)
(“[A] primary market for newly issued [securities] is not efficient or developed under any definition of these terms.”
that the price of the Hudson CDO securities reflected “ ‘all publicly available information, and, hence, any material
misrepresentations.’ ” Cromer Finance Ltd. v. Berger, 205 F.R.D. 113, 130 (S.D.N.Y.2001) (quoting Basic, 485
U.S. at 246, 108 S.Ct. 978). Rather, the Complaint alleges circumstances in which the Defendants essentially created
the market. Indeed, the Offering Circulars warn investors that “[t]here is currently no market for the [Hudson CDO
securities].” (Donne Decl., ex. A, at 42.) The Hudson CDOs were thus plainly the product of Goldman's manipula-
C. SECTION 20(a) CLAIM
[36] Dodona claims that the Defendants, except for the Hudson SPEs, violated § 20(a) of the Exchange Act.
Specifically, Dodona alleges that Goldman, GS & Co, Ostrem and Herrick directed and controlled the alleged mis-
conduct of the Hudson SPEs.
in the alleged fraudulent omissions. See Boguslavsky v. Kaplan, 159 F.3d 715, 720 (2d Cir.1998) (listing elements of
prima facie case of liability under § 20(a)); see also Parmalat II, 376 F.Supp.2d at 517 (holding that Rule 8 governs
the pleading standard for allegations of control pursuant to § 20(a), which need not be extremely detailed). Dodona's
Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC, 376 F.Supp.2d 385, 407 (S.D.N.Y.2005) (“The elements of
common law fraud thus are largely the same as those of a Rule 10b–5 claim except that there is no requirement that
the fraud be ‘in connection with the purchase or sale of securities.’ ”) (quoting 15 U.S.C. § 78j(b)); Nealy v. United
States Surgical Corp., 587 F.Supp.2d 579, 585 (S.D.N.Y.2008) (“A claim for fraudulent concealment requires the
same showing as that for fraudulent misrepresentation, with the additional requirement that the plaintiff must
(Compl. ¶ 205.) As discussed above, the Complaint has adequately pled that GS & Co committed an underlying
fraud. Moreover, the Complaint contains allegations sufficient to infer that Ostrem and Herrick, in their marketing
and structuring of the Hudson CDOs, had actual knowledge of the alleged fraud and enabled or “substantially assist-
ed” it. Through Ostrem and Herrick, knowledge of the fraud may be imputed to Goldman and the Hudson SPEs. In
addition, it is evident from the Complaint that GS & Co could not have committed the alleged fraud without the sub-
argue that this claim must fail because Dodona purchased the Hudson 1 securities from an intermediate party, rather
than any of the Defendants, and thus Defendants were not enriched at Dodona's expense. In addition, Defendants
argue that the Hudson 2 securities were governed by a written purchase agreement, and an unjust enrichment claim
is unavailable when “a valid and enforceable contract governing the same subject matter exists.” Soroof Trading
Dev. Co. v. GE Fuel Sys., LLC, 842 F.Supp.2d 502, 514, 2012 WL 209110, at *8 (S.D.N.Y.2012) (internal quotation
Cox v. Microsoft Corp., 8 A.D.3d 39, 778 N.Y.S.2d 147, 149 (1st Dep't 2004).
And although there is some indication in the Offering Circulars that those who purchased the Hudson CDO se-
curities would be required to do so pursuant to written agreements, the Complaint contains no allegations regarding
any written contract. While the Court anticipates that a contract will materialize during discovery, at this stage of the
proceedings, Dodona has properly pled unjust enrichment.
the alleged omissions, it would not have purchased the securities, or would not have purchased them at inflated pric-
es.
[32] Although Defendants argue that Dodona's losses coincided with the general market downturn and therefore
Hudson CDOs] and the financial markets in general, rather than a passive victim.” In re Ambac, 693 F.Supp.2d at
270; see In re Bear Stearns, 763 F.Supp.2d at 504–05 (citing In re Ambac, 693 F.Supp.2d at 269).
Dondona has made allegations sufficient to support a reasonable inference that the omissions “bear upon the
loss suffered such that [Dodona] would have been spared all or an ascertainable portion of that loss absent the
fendants manipulated the market for the Hudson CDOs in violation of § 10(b) and Rule 10b–5(a) and (c). The Com-
plaint alleges that they used “manipulative and deceptive devices and practices” when they structured, issued and
sold the Hudson CDOs with the belief that the Hudson CDO securities would not be profitable for investors, and the
knowledge that the Hudson CDOs were part of Goldman's subprime risk reduction strategy. (Compl. ¶ 165.)
[34] A claim for market manipulation cannot be based on a misrepresentation or omission alone, but must in-
100 (internal quotation marks omitted).
FN15. In contrast to the omission claim under Rule 10b–5(b), in the context of market manipulation under
Rule 10b–5(a) and (c), there is no need for Dodona to allege (or prove) that the Defendants had a duty to
disclose stemming from a statutory requirement or an otherwise misleading statement. Instead, a claim of
market manipulation involves “secret manipulation,” which need not include overt misleading statements.
ulative acts were performed, which defendants performed them, [and] when the manipulative acts were per-
formed....” Id. at 102 (“A claim of manipulation, however, can involve facts solely within the defendant's
knowledge; therefore, at the early stages of litigation, the plaintiff need not plead manipulation to the same degree of
specificity as a plain misrepresentation claim.”).
© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.
a. Reliance on Efficient Market Assumption
[35] However, in order for its market manipulation claim to survive Defendants' motions to dismiss, Dodona
must also allege “reliance on an assumption of an efficient market free of manipulation[.]” ATSI, 493 F.3d at 101;
see In re Parmalat Sec. Litig., 375 F.Supp.2d 278, 304 (S.D.N.Y.2005) (“ Parmalat I ”). Whether a market is effi-
cient is a question usually addressed when plaintiffs argue “fraud on the market,” which creates a rebuttable pre-
sumption of reliance where the market is efficient.FN16 Teamsters Local 445 Freight Div. Pension Fund v. Bom-
bardier, Inc., 546 F.3d 196, 199–200 (2d Cir.2008) (citing Basic, 485 U.S. at 242–49, 108 S.Ct. 978). In ATSI, the
Second Circuit essentially incorporated “fraud on the market” into the standard for market manipulation by requiring
that plaintiffs show “reliance on an assumption of an efficient market.” ATSI, 493 F.3d at 99–103,
I, 375 F.Supp.2d at 304 (internal citations and quotation marks omitted). In addition, there is some case law in this
Circuit to suggest that claims of market manipulation involving newly issued securities must fail because primary
markets are by nature inefficient. See In re Initial Public Offerings Sec. Litig., 471 F.3d 24, 42–43 (2d Cir.2006)
(holding that market for shares of an initial public offering is not efficient, in the context of fraud on the market)
(“[A] primary market for newly issued [securities] is not efficient or developed under any definition of these terms.”
that the price of the Hudson CDO securities reflected “ ‘all publicly available information, and, hence, any material
misrepresentations.’ ” Cromer Finance Ltd. v. Berger, 205 F.R.D. 113, 130 (S.D.N.Y.2001) (quoting Basic, 485
U.S. at 246, 108 S.Ct. 978). Rather, the Complaint alleges circumstances in which the Defendants essentially created
the market. Indeed, the Offering Circulars warn investors that “[t]here is currently no market for the [Hudson CDO
securities].” (Donne Decl., ex. A, at 42.) The Hudson CDOs were thus plainly the product of Goldman's manipula-
C. SECTION 20(a) CLAIM
[36] Dodona claims that the Defendants, except for the Hudson SPEs, violated § 20(a) of the Exchange Act.
Specifically, Dodona alleges that Goldman, GS & Co, Ostrem and Herrick directed and controlled the alleged mis-
conduct of the Hudson SPEs.
in the alleged fraudulent omissions. See Boguslavsky v. Kaplan, 159 F.3d 715, 720 (2d Cir.1998) (listing elements of
prima facie case of liability under § 20(a)); see also Parmalat II, 376 F.Supp.2d at 517 (holding that Rule 8 governs
the pleading standard for allegations of control pursuant to § 20(a), which need not be extremely detailed). Dodona's
Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC, 376 F.Supp.2d 385, 407 (S.D.N.Y.2005) (“The elements of
common law fraud thus are largely the same as those of a Rule 10b–5 claim except that there is no requirement that
the fraud be ‘in connection with the purchase or sale of securities.’ ”) (quoting 15 U.S.C. § 78j(b)); Nealy v. United
States Surgical Corp., 587 F.Supp.2d 579, 585 (S.D.N.Y.2008) (“A claim for fraudulent concealment requires the
same showing as that for fraudulent misrepresentation, with the additional requirement that the plaintiff must
(Compl. ¶ 205.) As discussed above, the Complaint has adequately pled that GS & Co committed an underlying
fraud. Moreover, the Complaint contains allegations sufficient to infer that Ostrem and Herrick, in their marketing
and structuring of the Hudson CDOs, had actual knowledge of the alleged fraud and enabled or “substantially assist-
ed” it. Through Ostrem and Herrick, knowledge of the fraud may be imputed to Goldman and the Hudson SPEs. In
addition, it is evident from the Complaint that GS & Co could not have committed the alleged fraud without the sub-
argue that this claim must fail because Dodona purchased the Hudson 1 securities from an intermediate party, rather
than any of the Defendants, and thus Defendants were not enriched at Dodona's expense. In addition, Defendants
argue that the Hudson 2 securities were governed by a written purchase agreement, and an unjust enrichment claim
is unavailable when “a valid and enforceable contract governing the same subject matter exists.” Soroof Trading
Dev. Co. v. GE Fuel Sys., LLC, 842 F.Supp.2d 502, 514, 2012 WL 209110, at *8 (S.D.N.Y.2012) (internal quotation
Cox v. Microsoft Corp., 8 A.D.3d 39, 778 N.Y.S.2d 147, 149 (1st Dep't 2004).
And although there is some indication in the Offering Circulars that those who purchased the Hudson CDO se-
curities would be required to do so pursuant to written agreements, the Complaint contains no allegations regarding
any written contract. While the Court anticipates that a contract will materialize during discovery, at this stage of the
proceedings, Dodona has properly pled unjust enrichment.
