Veleron Holding, B.V. v. Stanley (117 F. Supp. 3d 404, 2015)

United States District Court for the Southern District of New York 2015-07-23

Citations

Full opinion text

MEMORANDUM DECISION AND ORDER DENYING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND DENYING MOTIONS TO EXCLUDE TESTIMONY WITHOUT PREJUDICE TO APPROPRIATELY TIMED IN LI-MINE APPLICATIONS

McMAHON, District Judge.

Plaintiff Veleron Holding, B.V. (“Veler-on”) brings this lawsuit against Morgan Stanley, Morgan Stanley Capital Services, Inc., Morgan Stanley & Co., and Morgan Stanley & Co., Inc. (collectively “Morgan Stanley” or “Defendants”) alleging that Morgan Stanley violated § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (“SEC”) Rule 10b5. Presently before the Court are Docket #249, Morgan Stanley’s motion for summary judgment and Docket ## 241 and 245, Morgan Stanley’s motions to exclude the opinions of two of Veleron’s expert witnesses.

A little over a year ago, when deciding Morgan Stanley’s last motion for summary judgment, I wrote the following words:

Discovery has been taking place in this Court since I decided the motions to dismiss last May. Without going into detail here, suffice it to say that enough has been disclosed to this Court to convince me that Morgan Stanley is unlikely to prevail should it ever make a motion for summary judgment dismissing Veleron’s securities fraud claim on the merits. Evidence has turned up during discovery that, if credited by a trier of fact, would tend to support a claim that traders at Morgan Stanley shorted Mag-na stock while in possession of material, non-public information. There is also •evidence (consisting of both party admissions and expert testimony) that this trading depressed the price of Magna’s stock just prior to the ABB.

After a full review of the record submitted by the parties and the arguments they have briefed, my instincts are for the most part confirmed; while Veleron’s market manipulation claim must be dismissed, its insider trading claim is very much alive. Morgan Stanley’s motion for summary judgment is therefore GRANTED in part and DENIED in part. Its companion motions to exclude the opinion testimony of Sanjay Unni and Robert M. MacLaverty are DENIED.

BACKGROUND

Basic Element and Russian Machines Invest in Magna.

Plaintiff Veleron is a “B.V.,” or Dutch limited liability company. (Def. 56.1 ¶ 7.) Veleron was formed as a special purpose vehicle (“SPV”) to facilitate an investment by Russian Machines (“RM”) — an entity organized under the laws of Russia (Def. 56.1¶ 6; PI. 56.1 ¶ 6.) — in non-party Mag-na International, Inc. (“Magna”), a Canadian auto parts manufacturer with a global footprint. (Def. 56.1 ¶ 5.) RM is the sole shareholder of Veleron. (Def. 56.1 ¶8; Compl. ¶ 16.) RM is ultimately controlled by Basic Element, another company organized under the laws of Russia. (Def. 56.1 ¶2; Pl.Resp. to Def. 56.1 ¶ 2.) Basic Element, in turn, is owned entirely by an individual, Oleg Deripaska. (Compl. ¶ 32.)

In May 2007, it was announced that RM would make a strategic investment in Mag-na, whose shares are .traded on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange. (PI. Counter 56.1¶¶3-4; Def. 56.1 ¶5; PI. 56.1 ¶1.) RM intended to finance the acquisition primarily.through a loan of approximately $1.2 billion, to be obtained by Veleron from BNP Paribas, which formerly was a defendant in this action. (Def. 56.1 ¶ 10; PL 56.1¶ 8.) RM provided additional equity, so that the total value of the investment was approximately $1.54 billion. (PI. 56.1 ¶¶ 1, 9.) With these funds, Veleron purchased 20 million shares of Magna, or approximately one fifth of the company’s outstanding stock. Veleron’s Magna. shares were pledged as security for the loan. (Def. 56.1 ¶¶ 11-12; PI. 56.1 ¶ 9-10.)

The loan from BNP to Veleron was memorialized in two agreements.

The first, a “Credit Agreement” between Veleron (as “Borrower”) and BNP (as “Agent”), was ratified on September 20, 2007. (Polkes Decl. Ex. 8; Cooper Decl. Ex. 7.) Pursuant to the Credit Agreement, Veleron was obligated to pay, “All Advances and other amounts outstanding under the Credit Facility including unpaid principal, interest and fees ... on the Maturity Date.” (Credit. Agreement § 5.2.)" Further, the Credit Agreement re-, quired Veleron to maintain an adequate “coverage ratio” — the ratio of the value" of the Magna shares serving as collateral to the outstanding loan balance. (Credit Agreement §§ 1.1(32), 7.5(1).) . If the coverage ratio fell below a certain minimum value, Veleron was required to post cash collateral sufficient to restore the coverage ratio no later than two days after BNP presented it with a written demand. (Credit Agreement § 7.5(1).) If the coverage ratio fell further, BNP had the right to make an accelerated margin call, thereby requiring Veleron to post sufficient cash collateral to restore the coverage ratio within one day. (Credit Agreement § 7.6.)

The Credit Agreement specified certain events of default, including: if “The Borrower fails to make when due ... any payment of principal or margin required to be made by the Borrower ...” (Credit Agreement § 10.1(1).) Upon an event of default, the Credit Agreement allowed BNP to deliver to Veleron a written notice stating BNP’s intentions to exercise its rights under the agreement. (Credit Agreement § 10.2(1).) Those rights included' the rights to “declare that the Credit facility has expired,” and to “declare the entire principal amount of all Advances outstanding, all unpaid accrued interest and all fees and other amounts ... immediately due and payable — ” i.e., to accelerate the loan. (Credit Agreement § 10.2(l)(a)-(b).)

BNP and Veleron executed the Credit Agreement on September 20, 2007. The Credit Agreement provided that it was made “Between VELERON ... as Borrower and EACH OF THE FINANCIAL INSTITUTIONS AND OTHER ENTI-TIÉS FROM TIME TO TIME PARTIES HERETO as Lenders and BNP Paribas SA as Agent.” (Def. 56.1 ¶ 14; Cooper Dec. Ex. 7 at 1.) No other' Lenders were ever added to the Credit Agreement, so the only Lender was BNP.

The second agreement was a “Pledge and Security Agreement” between Veleron (as . “Pledgor”) and BNP Paribas (as “Agent”), also executed on September 20, 2007. (Cooper Deck Ex. 8.), by which Veleron granted BNP a security interest in the 20 million Magna shares to collateralize the $1.2 billion loan. (Pledge Agreement § 2.)

Under both the Credit Agreement and the Pledge Agreement, BNP was required to declare an event of default before any liquidation of the pledged collateral. (Cooper Dec. Ex. 7 §§ 1,1(99); 10.2(l)(b); Cooper Dec. Ex. 8 §§ 2.2, 4.4.)

Both agreements preserved BNP’s rights and remedies against Veleron to the fullest extent of the law. Thus, the Credit Agreement provided that BNP’s remedies upon an event of default were “cumulative and ... in addition to and not in substitution for any rights or remedies provided by law or equity.” (Cooper Dec. Ex. 7 §§ 11.1, 11.3.) So too, BNP’s “rights, remedies and powers under th[e] Pledge and Security Agreement or hereafter existing at law or in equity or by statute shall be cumulative and nonexclusive of any other rights, remedies and powers which [BNP] may have under any other agreement, including the other Loan Documents ...” (Cooper Dec. Ex. 8 § 4.5.)

The Credit Agreement also contained a confidentiality provision, binding BNP “to keep confidential any information obtained in relation to the [Credit] Agreement ..” (Cooper Dec. Ex. 7 § 14.12.) (Emphasis added). That “confidentiality obligation ... d[id] not extend to,” inter alia, “disclosure by the Agent [(BNP)] necessary for discharging its responsibilities under the Agreement, subject to recipients of such information signing a confidentiality and non-disclosure agreement for the benefit of [Veleron] and in form and substance reasonably satisfactory to [Veleron] in advance of receiving such information." {Id. § 14.12(a), (c) (emphasis added).)

Magna publicly disclosed the fact of the Credit Agreement and its terms in a Schedule 13D filing on October 1, 2007. (Def. 56.1 ¶ 13.) The confidentiality provision was not among the key terms discussed in the text of the 13D; but the Credit Agreement was-.attached in its entirety as Exhibit B to the filing, so the-provision was a matter of public record from and after October 1, 2007. {See http://www.sec.gov/Archives/edgar/data/ 749098/000119312507210928/dscl3d.htm).

Morgan Stanley Enters into an Agency Disposal Agreement

On January 31, 2008, Morgan Stanley entered into an “Agency Disposal Agreement” (“ADA”) with BNP. Pursuant to the ADA, Morgan Stanley agreed “to act as [BNP’s] agent in respect of the disposal of part or all of the [Pledged Collateral of the Loan] ...” if Veleron defaulted and BNP decided to sell the Magna stock it was holding as collateral. (Cooper Dec. Ex. 10 § 1, Whereas clause (D).) The proceeds of any disposal conducted under the agreement were to be applied to discharge Vel-eron’s obligations to BNP pursuant to the Credit Agreement. (Cooper Dec. Ex. 10 § 2, Whereas clause (C).)

The ADA- stated that Morgan Stanley, “in providing investment banking services to the Client in connection with any Disposal or the Disposal Programme (including and pursuant to -the terms of this Agreement) ... is acting as an independent contractor and not as a fiduciary and [BNP] does not intend Morgan Stanley to act in any capacity other than independent contractor including as a fiduciary or in any other position of higher trust.” (ADA, Polkes Dec. Ex. 14 § 2.) Further, the ADA gave Morgan Stanley the right to determine both the method by which the collateral would be sold and the price to be obtained therefor. However, its -discretion was not unlimited: Morgan Stanley “acknowledge[d] that [BNP], in enforcing its security under the Pledge Agreement [with Veleron], is obligated to seek the best price available in the market for transactions of a similar size and nature at the- time of sale, and Morgan Stanley agrees to use all reasonable [sic] to comply with such terms.” {Id. § 2.)

Morgan Stanley Receives an “Investor Pack” Regarding the BNP-Veleron Transaction.

. With Veleron’s knowledge, BNP syndicated participation in the risk of the loan. (PI. Counter 56.1 ¶22.) Morgan Stanley ultimately became a member of that syndicate.

In connection with its consideration of a possible participation in the Veleron loan, Morgan Stanley received a Veleron-ap-proved “Investor Pack” from BNP. (PL Counter 56.1 ¶ 33.)

The Investor Pack contained a confidentiality provision regarding “Evaluation Material”:

Veleron considers the Evaluation Material to include confidential, sensitive and proprietary information and [the recipient] agrees that it shall keep such Evaluation Material confidential in accordance with its established procedures for keeping information confidential and with safe and sound banking practices.

(Id.) The confidentiality “terms and conditions ... shall apply until such time, if any, that the Recipient becomes a party to the definitive agreements regarding the Financing, and thereafter the provisions of such definitive agreements relating to confidentiality shall govern.” (Cooper Dec. Ex. 12 at 4.)

The Investor Pack defined “Evaluation Material” as:

the Investor Pack, any other information regarding Veleron, Basic Element Ltd., Magna International Incorporated (‘Magna’), their affiliates or the Financing (as defined herein) furnished or communicated to the Recipient by or on behalf of Veleron, in connection with the Transaction (whether prepared or communicated by [BNP] or Veleron, their respective advisors or otherwise ...

(Cooper Dec. Ex. 12 at 2.) (Emphasis added). The “Transaction” was described as a complex mechanism by which Veleron would acquire 20 million shares of Magna stock, which included lending BNP’s borrowed money to a newly formed Canadian holding company called “Newco II,” which would purchase the 20 million shares using that money and put up the shares as collateral. (Polkes Ex. 11 § II(l)(a).) The Pack contains no pithy definition of the Transaction, but its Executive Summary explains that:

The Transaction involves the creation of a joint venture holding company “New-co” (the parent of Newco II) capitalized by Frank Stronach and other existing senior executives of Magna with Class B senior voting shares of Magna, and take a number of Class A subordinated voting shares in return for Newco shares. The end effect, taking into account the above mentioned capitalization and the subscription by Newco II of the 20 million Shares, is that Newco will hold approximately 16.5% of the economic value of Magna, and 68.8% of the voting rights. Veleron will also be issued shares in Newco in return for i) the provision of the USD1.54 billion financing to Newco II mentioned above and ii) a cash payment of USD75 million. Such shareholding in Newco will give Oleg Deripaska indirectly 25,5% of the voting interest and 6.9% of the economic interest in Magna, but more importantly, following various contractual arrangements between the shareholders of Newco, an effective joint control of Magna with the Stronach family.

(Id. § I.) In short, the “Transaction” was the acquisition by Veleron (and indirectly by Deripaska) of a significant interest in Magna.

The Investor Pack bore the following legend:

ACCEPTANCE OF THIS INVESTOR PACK CONSTITUTES AN AGREEM-EMNT TO BE BOUND BY THE TERMS OF THIS NOTICE AND UNDERTAKING, IF THE RECIPIENT IS NOT WILLING TO ACCEPT THE INVESTOR PACK AND OTHER EVALUATION MATERIAL AS DEFINED HEREIN ON THE TERMS SET FORTH IN THIS NOTICE AND UNDERTAKING, IT MUST RETURN THE INVESTOR PACK AND ANY OTHER EVALUATION MATERIAL TO [BNP] IMMEDIATELY WITHOUT MAKING ANY COPIES THEREOFEXTRACTS THEREFORM OR USE THEREOF.

(Cooper Dec. Ex. 12 at 2.)

Morgan Stanley received an Investor Pack sometime in 2007, and was still in possession of it as of September 30, 2008. (PI. -Counter 56.1 ¶ 84.)

Morgan Stanley took a participation in the Loan by entering into a credit default swap agreement (the “Swap”) with BÑP on or about March 28, 2008-shortly after it signed on as Disposal Agent. Pursuant to that Agreement, Morgan Stanley assumed 8.1% of BNP’s credit risk associated with the Loan. It received a fixed payment from BNP in exchange. (Polkes Decl. Ex. 12 and Ex. 14 § 2.)

Morgan Stanley was one of four institutions that hedged BNP’s risk on the loan; the other hedging institutions included Credit-Suisse, Natixis, and the Royal Bank of Scotland. (PI. 56.1 ¶ 22.)

Veleron asserts that Morgan Stanley never entered into a “definitive agreement” in connection with the financing. (Cooper Dec. Ex. 47.) That is not correct. Morgan Stanley certainly never signed any agreement to become a Lender-indeed, as far as I know, there is no evidence that Morgan Stanley was ever asked to become a Lender, because it was not eligible to become a Lender. As I observed in the decision oh the motion to dismiss, no U.S. institution was eligible to become a Lender under the Loan Agreement. (Decision and Order of May 16, 2013, Docket # 217 at 44.)

Morgan Stanley was also not eligible to become a “Participant” in the loan, for the same reasons (i.e., it was subject to United States securities laws). Id. at 44 n. 10. However, it nonetheless took on a share of the risk of the loan. It did so by signing a “definitive agreement.,... regarding the Financing” — namely,. the Credit Default Swap Agreement. As a matter of plain language, the Credit Default Swap Agreement, which hedged the loan (the Financing) contemplated by the. Investor Pack, qualifies as a “definitive agreement _regarding the Financing.” As a result, the terms of the Credit, Default Swap Agreement governing confidentiality (if any) in the Evaluation Material replaced the confidentiality provision of the Investor Pack.

No provision in the Credit Default Swap Agreement explicitly binds Morgan Stanley to keep confidential information that it received from BNP relating to the Evaluation Material (which is the only “confidential information” in the Investor Pack). To the contrary the Swap Agreement incorporates by reference a provision that specifically disclaims any confidentiality obligation. A confirmation entitled “Confirmation for Credit Derivative Transaction,” issued in connection with the settlement of the Swap, which was sent from BNP to Morgan Stanley' on March 28, 2008, provides that “The definitions and provisions contained in the 2003 ISDA Credit Derivatives Definitions ... as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation.” (Polkes Dec. Ex. 12.) Section 9.1(b)(v) of the 2003 ISDA Definitions provides as follows: “a party receiving information from the other party with respect to such Credit Derivative Transaction shall not become subject to any obligation of confidentiality in respect of that information.” (Polkes Deck Ex. 13 (emphasis added).)

The Swap Agreement required BNP to notify Morgan Stanley of margin calls made under sections 7.5(1) or 7.6 of the Credit Agreement, within one businéss day of such margin calls. (Swap Agreement § 7(g).) BNP also promised to notify Morgan Stanley of any pre-payments by Veleron, within one business day of the reduction in the loan amount. (Id.) If BNP decided not to exercise certain rights under the Credit Agreement — such as waiving the right to declare a default or accelerate the loan — then the Swap Agreement required BNP to inform Morgan Stanley of its decision to forgo those rights. (Swap Agreement § 7(d).) Proceeds from any sale of the pledged collateral would be applied to “the payment of the principal amount of any Obligations outstanding under [the Credit Agreement] and then to the payment of accrued and unpaid interest thereunder ... Z” (Cooper Dec. Ex. 7 § 6.4.)

Morgan Stanley’s agreement to hedge the margin loan placed it in the position of having two different and potentially competing interests in Veleron’s ownership of Magna stock: it bore a significant portion of the risk of Veleron’s default under the loan, but it stood to gain a sizable fee were it called upon to dispose of the Magna stock that collateralized the loan.

Morgan Stanley Receives Word that BNP is Likely to Issue a Margin Call that Veleron is Unlikely to Meet.

This lawsuit concerns events that occurred between September 29, 2008 and October 3, 2008. They very mention of those dates conjures the horror of the crisis that gripped the Western world’s financial markets and .institutions that fall. Morgan Stanley was devastated by that crisis. Its liquid assets fell by approximately $75 billion between August 28, 2008 and October 3, 2008; the Washington Post reported that, between late September and October 11, 2008, Morgan Stanley took a “pounding ... its stock price falling more than 50 percent.” (Cooper Dec. Ex. 52; Ex. 56; Ex. 57; Ex. 58.) Morgan Stanley’s exposure to credit default swaps was deemed particularly problematic and potentially fatal for the venerable institution. The New York Times reported that, “Within three hours on Tuesday Sept. 16, [2008,] Morgan Stanley shares fell another 28 percent, and the rising cost of its credit-default swaps suggested investors were predicting bankruptcy.” (Cooper Dec. Ex. 51.) On September 19, 2008, the Wall Street Journal reported that Morgan Stanley’s chief executive was engaged in an “all-out fight to save the Wall Street firm ...” (Cooper Dec. Ex. 53.)

In September 2008, Magna’s stock (like everyone else’s) was declining in value. (Morgan Stanley 56.1 ¶ 26.) By the end of September, it had fallen enough to trigger a margin call. Therefore, at 4:38 p.m. on September 29, 2008, BNP sent a written notice of margin call to Veleron, demanding payment of $92,458,716 to eover the shortfall by 1:00 p.m. on October 1, 2008. (Def. 56.1 ¶ 33; Cooper Dec. Ex. 60.) As required by the Swap Agreement, BNP immediately notified Morgan Stanley about the margin call. (PI. Counter 56.1 ¶ 67.)

At 8:23 a.m. on September 30, 2008 (i.e., the next morning, before the market opened) Morgan Stanley employee Ales-sandro Amicucci, a Managing Director in Morgan Stanley’s Global Capital Markets group, e-mailed several of his co-workers — including Kevin Woodruff, a Managing Director in the group at Morgan Stanley responsible for disposing of the Pledged Collateral and the person ultimately responsible for overseeing any disposal under the Agency Disposal Agreement. The email was headed “URGENT: Project Pearl — MAGNA shares/ CLIENT NOT MEETING A MARGIN CALL.” (Cooper Dec. Ex. 18.) In pertinent part, Amicucci informed his co-workers that: “BNPP has called for a margin call yesterday • (approx USD . 93 MM)”; and “CLIENT (Oleg Deripaska’s ..vehicle) is facing liquidity issue, so BNPP (together with hedging parties) would like to discuss ... early termination.” (Id.) Amicucci went on to reveal that Veleron was asking BNP to restructure the loan, or seeking permission to make early repayment. In connection with those discussions, it was asking for a waiver of the September 29 Margin Call. (Id.)

Veleron takes the position that three facts — (1) BNP had made. a $93 million margin call, (2) Veleron had a liquidity issue, and (3) Veleron was asking that the loan be restructured — were not generally known in the marketplace on September 30, 2008, and so qualified as inside information. (PI. 56.1 ¶73.) Morgan Stanley contends that other firms monitoring Mag-na’s stock price would (or, perhaps, should) have been able to conclude that a margin call might issue (Def. 56.1 ¶¶ 31-32), but it offers no evidence that anyone other than BNP, 'itself and the other three participants in the hedging syndicate were in fact aware of these momentous events. Morgan Stanley says nothing’ about whether Veleron’s “liquidity issue” or the loan restructuring request were a matter of general knowledge.

All three of these three facts are indubitably “infdrmation obtained in relation to the [Credit] Agreement,” and BNP was contractually required to keep all such information confidential, except as necessary to “discharging its responsibilities under the Agreement.” As selling the collateral promptly in order to mitigate its damages was plainly one of BNP’s “responsibilities under the Agreement,” BNP was permitted to tell Morgan Stanley, its agent for the disposal of the collateral, that its services might soon be required, together with related information. But BNP was supposed to have Morgan Stanley sign a confidentiality and nondisclosure agreement (known in the industry as an NDA) for the benefit of Veleron, as required by § 14.12(a)(c) of the Credit Agreement, before apprising Morgan Stanley of these facts. As far as the record reveals, BNP did not require — indeed, did not even ask — Morgan Stanley to sign an NDA.

The fact of the margin call (but not the other two facts) was information that BNP was required to disclose to Morgan Stanley under the terms of the Swap Agreement. Wearing that hat, Morgan Stanley had no contractual obligation to keep the information to itself. But while there may have been two hats, there was only one Morgan Stanley.

Morgan Stanley Takes Short Positions on Some of the Magna Shares.

Seventeen minutes after Amicucci sent his email, or at 8:40 a.m. on September 30, 2008, the message was forwarded to someone not on its original address list: Kerim Tuna, then a Vice President in Morgan Stanley's Institutional Equity Division. Lest Tuna overlook it, the email was flagged, indicating that it was of high importance. (Cooper Dec. Ex. 61; PI. 66.1 ¶ 78.)

Tuna was a trader; he traded principally for Morgan Stanley’s own account. (PL 66.1 ¶ 80.) He was responsible for managing Morgan Stanley’s risk in connection with the BNP Credit Default Swap relating to the Magna financing. (PL 56.1 ¶ 79.)

At 10:12 a.m., after consulting with Woodruff, another Morgan Stanley Managing Director, Mohit Assomull, asked that a member of his team run a model for the disposal of approximately 20% — $1.1 billion worth — of Magna stock. (PL 56.1 ¶ 91-92.)

At 11:42 a.m., Woodruff and Tuna both received an Excel workbook showing that Veleron would not be in a position to meet the margin call (Cooper Dec. Ex. 19.) This, of course, greatly increased the likelihood that the shares would have to be sold.

Fourteen minutes later, at 11:56 a.m., Tuna began shorting Magna stock for the benefit of Morgan Stanley, at an average price of $51.32 per share. (PL 56.1 ¶¶ 112— 113.) An investor sells “short” when he borrows a security from someone else (typically a broker) and then sells it, hoping the stock will fall so that, at a later date, when the investor “covers” the short position by purchasing the security and returning it to the lender, he can capitalize on the price differential. S.E.C. v. Lyon, 605 F.Supp.2d 531, 536 (S.D.N.Y.2009) (citing ATSI Communs., Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 96 n. 1 (2d Cir.2007)). Obviously, shorting Magna offered Morgan Stanley some cushion against the possibility of a loss on the Credit Default Swap Agreement.

The situation continued to deteriorate. At 4:44 p.m. on September 30, 2008, BNP issued an accelerated margin call to Veler-on, demanding a payment of $113,825,691 (ie., an additional $21 million) by 1:00 p.m. on October 1, 2008. (Cooper Dec. Ex. 97.)

By the end of the day on September 30, 2008, Morgan Stanley had sold short 191,-505 Magna shares. (Def. 56.1 ¶ 28.) According to Veleron’s expert Dr. Unni, Tuna’s September 30 short sales depressed the price of Magna’s stock by between $0.18 and $0.41 per share. (PL 56.1 ¶ 117.) Magna stock opened at $52.69 on September 30; it closed at $51.19. (See http://www.magna.com/ investors/shareholder-information/ historical-price-lookup.)

Restructuring Negotiations Continue As Morgan Stanley Shorts More Magna Stock

Meanwhile, Veleron was negotiating with BNP try to restructure the margin loan. Restructuring negotiations occurred during conference calls on October 1 and October 2. (PL 56.1 ¶ 127.) Although it was not required to dó so under the terms of the Swap, BNP insisted that all of the banks to which it had dispersed its risk, including Morgan Stanley, consent to any restructuring of the margin loan. (PI. 56.1 ¶ 22.) As a result, Morgan Stanley (wearing its participation hat) was party to those discussions.

Critical to’ the success of the negotiations was a loan guarantee from someone with more assets than an SPV like Veler-on. Basic Element, on behalf of RM, actually provided a signed guarantee on October 1, 2008 at 5:23 p.m. — although it would later take the position that the guarantee was invalid because it had not been approved by its Board. (Def. 56.1 ¶¶ 42-47.) Nonetheless, receipt of the guarantee allowed the restructuring discussions to continue into October 2.

But from the get-go, Morgan Stanley was not an enthusiastic participant in restructuring talks. Long before the negotiations ended — indeed, as early as 9:14 a.m. on October 1, which was almost 8 hours before the RM guarantee was tendered— Woodruff informed six other Morgan Stanley employees, including Tuna, that a “restructuring [was] looking less likely.” (Cooper Dec. Ex. 106.) At least part of the reason why restructuring proved elusive was that Morgan Stanley’s Chief Risk Officer, Kenneth deRegt, did not favor any restructuring that would convert the Loah into a credit risk facing RM. (PI. 56.1 ¶ 135.) In fact, Morgan Stanley wanted to pull-the plug on the loan; but it wanted one of the other hedging banks or BNP to be the first to say-no to restructuring. (PI. 56.1 ¶ 138.) No one has said so explicitly, but its conflicting positions suggest one reason why Morgan Stanley might not have wanted to be the bank that ended negotiations.

Morgan Stanley was well aware that information about how the negotiations were (or were not) going would be market moving, and it demanded that the fact of the discussions and the impending liquidation sale be kept secret. Morgan Stanley was proposing to sell the shares in an ABB, an Advanced Book Building, which is a way to dispose of large blocks of stock quickly and otherwise than through a stock exchange. (Def. 56.1 ¶ 56-57.) During a telephone conference held on October 2, 2008, with representatives from BNP, and the other Participant banks on the line, someone asked whether Morgan Stanley had “any precautions ... buil[t] in to their normal ABB procedures to avoid front running risks?” (Cooper Dec. Ex. Ill at BNPP003887.) Morgan Stanley’s Kevin Woodruff responded, “No ... I mean other than keep the group of people who are informed as small as possible.” (Id)* His questioner asked, “Are they normally under NDAs or anything like that?” (Id.) Woodruff ultimately answered: “Obviously the critical thing for everybody on this call is not to leak this out to either people on your trading floors or to potential investors ahead of time because then the stock will probably take a nosedive very quickly. So the biggest precaution that,we can all-take is to keep this highly confidential.” (PL 56.1 ¶ 164.)

Nonetheless, Tuna, with full awareness of what was happening with the restructuring discussions, continued selling Mag-na short. On October 1, 2008, Morgan Stanley shorted another 160,655 Magna shares for its own account, at an average price of $50.12 per share. (Def. 56.1 ¶ 29; PI. 56.1 ¶ 144.) Veleroris expert, Unni, contends, that the October 1. short sales depressed the price of Magna stock by between $0.20 and $0.42 per share (PI. 56.1 ¶ 149.), and that the sales from the two days had a statistically significant price impact on Magna's share price on October 2. (Unni Aff. ¶ 183.) 'He opines that the short sales signaled to the market that Morgan Stanley knew something that the rest of the market did not. (Unni Rep. ¶¶ 43-47.)

The closing price of Magna on October 1, 2008 was down to $49.75. (See http:// www.magna'.cdm/investors/shareholder-information/historical-price-lookup.)

Default Not Cured, BNP Decides to Sell the Collateral

Veleron did not meet the 1 PM. margin call deadline on October 1. (PI. 56.¶¶ 130-131.) Accordingly, BNP sent Veleron a letter on the afternoon of October 1, declaring that Veleron’s failure to pay the margin call was an event of default. (Cooper Dec. Ex. 98.) As recounted above, negotiations continued nonetheless, and the RM guarantee was tendered.

Twenty-four hours later, at 1:00 p.m. on October 2, 2008, Morgan Stanley sent BNP a notice terminating the Credit Derivative Transaction. It was the first of the hedging banks to provide such a notice. (PI. 56.1 ¶¶ 165-66.)

An hour later, at 2:00 p.m. on October 2, 2008, BNP told the other banks that Russian Machines’ board had not approved the guarantee, and that it would not be honored. (PI. Response to Def. 56.1 ¶48.) After it became clear that the guarantee would not be honored, BNP sent Veleron a second Notice of Default, informing Veler-on that “if payment or arrangements satisfactory to the Agent for payment are not made by 8:00 p.m. (Toronto time) [BNP] will take such steps as it deems necessary to recover (Veleron’s) indebtedness” including “enforcement of the security under the pledge and security agreement.” (Def. 56.1 ¶ 49.)

But’.there would be.no waiting' until 8 p.m. Toronto time. Once Morgan Stanley notified representatives from BNP and the other banks that it had sent a notice terminating the Swap, a representative from BNP stated: “I mean it’s one for all and all for one. If one party drops out it’s the whole pack of cards comes down, the house of cards comes dowp. So if that’s the situation so be it, we’re in a liquidation scenario.” (Cooper Dec. Ex. 27 at BNPP004195.) At 3:56 p.m., four hours before Veleron’s deadline, BNP instructed Morgan Stanley to liquidate the pledged collateral. (Def. 56.1 ¶ 50.)

The closing price of Magna- on October 2, 2008 fell to $45.59. (Cooper Dec. Ex. 118.)

Morgan Stanley Liquidates the Pledged Collateral, Primarily Through Off-Market Transactions.

Between 7:00 a.m. and 9:30 a.m. on October 3, 2008 (i.e., before the market opened), Morgan Stanley, acting on behalf of BNP under the Agency Disposal Agreement, liquidated 18,671,512 Magna shares at an average price of $37.60 in the ABB. (PI. 56.1 ¶¶ 176, 179-80.) Morgan Stanley provided an initial offer range of $39 to $42.50 in the ABB, representing a 7-14% discount from the previous day’s closing price. (Cooper Dec. Ex. 34 at 208.) The average per share price in the ABB was $37.60 per share, or lower than the range. (PI. 56.1 ¶¶ 179-80.)

Morgan Stanley covered its short positions by purchasing approximately 360,000 shares in the ABB, thereby realizing a profit of approximately $4.59 million dollars. (Unni Report ¶¶ 40-41.) ■

When the market opened, a press release disclosed the fact of the liquidation. The parties agree that, “Prior to the launch of the ABB, it was not publicly known that there would be disposal of 20 million shares of Magna.” (Id. ¶ 178.)

Morgan Stanley liquidated the remainder of the pledged collateral by selling 1,328,488 shares on the NYSE (during regular trading hours) at an average price of $41.65 per share. (PI. 56.1 ¶ 181.)

' In total, the liquidation brought in $748 million, leaving a deficiency of $79 million on the margin loan. (Def. 56.1 ¶¶ 60-61.)

As thfe loan could not be repaid in full from the proceeds of the liquidation, Morgan Stanley was required to pay BNP $6.6 million under the Swap. (Def. 56.1 ¶ 62.) However, by covering its short positions in the ABB, however, Morgan Stanley had mitigated its loss on the Swap to the extent of $4.59 million, leaving it-with an overall loss of approximately $2 million on the Swap. (Id. ¶ 63.) For its services as disposal agent, Morgan Stanley was paid a fee of $9,466,433.50. (PI. 56.1 ¶ 190.) It also earned $590,000 in commissions as a result of the liquidation. (Id. ¶ 191.) All in all, Morgan Stanley made about $8 million under its various contracts with BNP regarding Veleron/Magna.

BNP’s Effort to Collect the Deficiency

On October 6, 2008, BNP sent a letter to Veleron demanding payment of the “deficiency of $79,373,574.68,” with interest. (PI. Counter 56.1 ¶ 184.)

Veleron did not pay, and BNP made no further efforts to recover any deficiency amounts from Veleron. . (First Amended Complaint ¶ 177.) This was a perfectly sensible decision; as Veleron was an SPV, there was not much point in going after it..

Instead, after collecting approximately $7.8 million from its insurance carrier (Ex. 42 to the First-Amended Complaint), BNP initiated an arbitration proceeding in London- against -RM, seeking to recover the deficiency by enforcing the guarantee that had been tendered on October 1. (Id. ¶ 65.) The arbitrator found the guarantee to be valid and binding and held Russian Machines liable for the entire deficiency. To frustrate BNP’s ability to collect on its award, Deripaska promptly placed that corporation into insolvency proceedings in Russia. (Id. ¶¶ 66-67.)

Procedural History

Veleron commenced this lawsuit on August 3, 2012.

In addition to Morgan Stanley, Veleron originally named as defendants BNP Pari-bas SA, BNP Paribas Fund Services UK Limited, BNP Paribas Trust Corporation UK Limited, BNP Paribas UK Limited, BNP Paribas Commodity Futures, Ltd., Investment Fund Services Limited, BNP Paribas London, BNP Paribas NY, Credit Suisse, Credit Suisse International, Credit Suisse AG, Credit Suisse Group, Nex-gen/Natixis Capital Limited, Groupe BPCE, Natixis North America, LLC, Na-tixis Financial Products, Inc., ABN AMRO Bank, N.V., ABN AMRO Bank Holding, N.V., ABN Amro Holdings, N.V., ABN AMRO Clearing Bank, N.V., ABN AMRO Clearing Chicago, LLC, ABN AMRO Holdings USA, LLC, ABN AMRO Securities (USA) LLC, ABN AMRO Capital USA, LLC, ABN AMRO Funding Services USA, LLC, The Royal Bank of Scotland N.V., The RBS Group, The Royal Bank of Scotland Group, LLC, RFS Holdings, B.V., Fortis Bank (Nederland) N.V., and Magna International, Inc.

Following an initial pretrial conference on September 21, 2012, Morgan Stanley, together with Credit Suisse International (“Credit Suisse”), Nexgen/Natixis Capital Limited (“Nexgen”), The Royal Bank of Scotland N.V., and BNP, made a motion to stay this case pending the outcome of the London Arbitration. I denied that motion on October 12, 2012.

On November 16, 2012, the same defendants moved to dismiss Veleron’s complaint. On November 19 and 20, certain additional defendants were voluntarily dismissed from this action without prejudice.

On December 7, 2012, before the motions to dismiss could be resolved, Veleron filed the First Amended Complaint. It alleged the following causes of action:

• Count 1: breach of contract against BNP (Credit Agreement);

• Count 2: tortious interference with contract against Morgan Stanley and the Foreign Bank Defendants (Credit Agreement);

• Count 3: breach of contract against BNP (Pledge Agreement);

• Count 4: breach of contract against Morgan Stanley (Pledge Agreement and Agency Disposal Agreement);

• Count 5: breach of contract against BNP (Forbearance Agreement);

• Count 6: promissory estoppel against BNP (forbearance);

• Count 7: tortious interference with contract against Morgan Stanley (Forbearance Agreement);

• Count 8: tortious interference with prospective economic advantage against all defendants (Veleron’s relationship with Magna); and

• Count 9: Securities Exchange Act of 1934 Section 10(b) and Rule 10b-5 violations against Morgan Stanley.

Morgan Stanley, together with Credit Suisse International (“Credit Suisse”), Nexgen/Natixis Capital Limited (“Nex-gen”), The Royal Bank of Scotland N.V., and BNP, moved to dismiss the FAC on January 18, 2013. All but Morgan Stanley moved to dismiss on the grounds oí forum non conveniens and failure to state a claim (Rule 12(b)(6)). Morgan Stanley moved solely for failure to state a claim.

On May 16, 2013, I dismissed all claims against Credit Suisse, Nexgen, RBS and BNP on forum non conveniens grounds. (Docket # 117) I dismissed Veleron’s tor-tious interference claims against Morgan Stanley as time barred. I dismissed Vel-eron’s claim that Morgan Stanley breached the Pledge Agreement because Morgan Stanley was not bound by that agreement. I also dismissed Veleron’s claim that Morgan Stanley breached the Agency Disposal Agreement, because Veleron was neither a party to that agreement nor an intended third party beneficiary.

What remained was Veleron’s claim that Morgan Stanley had committed securities fraud, either through insider trading or market manipulation.

After the London arbitration tribunal entered an award in favor of BNP, finding Russian Machines liable under its guarantee for the entire deficiency. Morgan Stanley moved for summary judgment, arguing that Veleron was collaterally es-topped to pursue its claims by virtue of several statements made by the arbitrator in his Award. I denied that motion on April 2, 2014.

At the close of discovery, Morgan Stanley moved for summary judgment, as well as for an order striking the testimony of Veleron’s expert witnesses, Unni and Ma-cLaverty. Those motions are disposed of as follows.

DISCUSSION

I. Veleron Has Article III Standing To Pursue Its Securities Claims Against Morgan Stanley.

Morgan Stanley first argues that Veler-on lacks constitutional standing to bring its claim. Because constitutional standing is a jurisdictional requirement, I must address this issue first. See Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 156 (2d Cir.2003).

Article III of the Constitution limits the jurisdiction of federal courts to “cases” and “controversies.” U.S. Const, art. Ill, § 2. The Supreme Court has Interpreted this case and controversy limitation to require that plaintiffs possess “standing” to bring a suit. Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). To establish standing, a plaintiff must show (1) an “injury in fact” which is “concrete and- particularized”; (2) a “causal connection” between the injury and allegedly wrongful conduct; and (3) that the injury can be “redressed by a favorable decision.” Id. at 560-61, 112 S.Ct. 2130 (internal citations and quotation marks omitted).

Veleron identifies its “injury in fact” as the size of the deficiency for which It was and remains liable; plaintiff argues that the deficiency would have been much less but for Morgan Stanley’s insider trading and market manipulation. Morgan Stanley counters that Veleron lacks an “injury in fact,” because the loan from BNP was a non-recourse loan, so Veleron was never liable for any deficiency. (Def. Br. at 24.) Further, Morgan Stanley argues, Veleron has not established that “it personally has suffered [an] injury in fact” insofar as it never paid the deficiency on the loan. Clinton v. City of New York, 524 U.S. 417, 457, 118 S.Ct. 2091, 141 L.Ed.2d 393 (1998) (Scalia, J., concurring in part and dissenting in part).

Morgan Stanley is wrong about the loan’s being a non-recoiirse loan.

A recourse loan is one “in which ... the lender agrees to look exclusively to the collateral, and never to dun the borrower for a deficiency if a sale of the collateral fetches less than the balance.” Racine v. Comm’r, 493 F.3d 777, 781 (7th Cir.2007). Generally, courts characterize debts as non-recourse only when that character is apparent from the language of the instrument creating the debt. Fid. Mut. Life Ins. Co. v. Chicago Title & Trust Co. of Chicago, No. 92 Civ. 8475, 1994 WL 494897, at *5 n. 1 (N.D.Ill. Sept. 7, 1994). The fact, that a debtor lacks the wherewithal to repay a loan does not make it a non-recourse loan — even though the lender knows at the time it lends the money that the debtor has no assets other than the loan collateral and will only be able to repay the loan to the extent of the value of the collateral. In re Parmalat Securities Litigation, 477 F.Supp.2d 602 (S.D.N.Y.2007).

Morgan Stanley points to no language in the Credit or Pledge Agreements that renders the loan non-recourse as against Veleron, the Borrower. But Vel-eron identifies language in the agreements that indicates the contrary. For example, § 11.3 of the Credit Agreement explicitly make the loan a recourse loan as against Veleron. It provides that, as against the Borrower (Veleron), BNP “may ... bring suit at law, in equity or otherwise, for ... the recovery of any judgment for any and all amounts due in respect of the Obligations.” (Credit Agreement at 46 (emphasis added).) “Any and all amounts due ih respect of the Obligation” means what it says: BNP can sue Veleron for the full amount due under the loan, including any deficiency after the sale of the pledged collateral.

Similarly, Section 4.4(3) of the Pledge Agreement provides that, aside from the right to realize on the collateral, the “Agent and Lenders shall not have any claim against Newco, Newco 1.5, Newco II or any of their assets.” (Pledge Agreement at 11; see also Credit Agreement at 33.) “Shall not have any claim against” -is classic non-recourse language, but it- applies, only to the three Newcos. Veleron’s name is conspicuously absent from the list of companies' as to whose assets no. recourse can be had. That means there is no such limitation on recovery against Vel-eron.

Morgan Stanley ignores the text of the Agreements, arguing instead that Veler-on’s witnesses testified to their understanding that BNP had recourse only to pledged collateral if Veleron defaulted. (See, e.g., Polkes Deck Ex. 1 (“Moldazha-nova Dep. Tr.”) .at 33:10-16, 151:3-22.) Morgan Stanley also cites the Investor Pack, which advises that “Should Veleron and Newco II go bankrupt, the only assets to which the transaction has recourse are the 20 million Magna Shares together with any cash collateral delivered under the financing [and any amount under the Guarantee (currently under negotiation) given by Russian Machines to BNP Pari-bas].” (Investor Pack at 20.)

All of this is parol evidence, which is not admissible to vary or modify the unambiguous terms of the Agreements — and they are indeed^ unambiguous, as the contract expressly provides that BNP “may ..; bring suit at law, in equity or otherwise, for ... the recovery of any judgment for any and all amounts due in respect of the Obligations.” (Credit Agreement at 46 (emphasis added).). The Credit Agreement is governed by Canadian law, and Canada, like the United States, requires that unambiguous contracts be interpreted without recourse to evidence beyond the four comers of a contract. See Canadian Encyclopedic , Digest — Contracts § IX.2.(b).

Of course, as a practical matter, Veler-on’s witnesses and the Investor Pack spoke true: since Veleron, an SPV, had minimal or no assets other than the Magna stock, suing Veleron for any deficiency would .be throwing- good money after bad. But that does not obviate Veleron’s injury, because it does not obviate its legal liability for the deficiency. While uncollectability often proves a potent shield against suit, it is not a defense to legal liability,- and legal liability is what matters for standing purposes.

This precise issue was litigated years ago before my colleague, Judge Kaplan, in In re Parmalat Securities Litigation, 477 F.Supp.2d 602 (S.D.N.Y.2007). The plaintiffs in that case were, like Veleron, two special purpose entities created solely to acquire the stock in a holding company for Parmalat’s Brazilian operations. Id. at 605. The plaintiffs financed their purchases of holding company stock by issuing $150 million notes, secured by the stock. Id. at 605-06. Parmalat collapsed as a result of a fraudulent scheme, and, as a result, the value of its stock crashed and the plaintiffs defaulted. They sued entities including Bank of America — which had helped to form the SPVs and allegedly was instrumental in the issuance of notes and the matrix of security agreements relating to them — on theories of fraud, negligent misrepresentation, aiding and abetting breach of fiduciary duty, unjust enrichment, and civil conspiracy.

Defendants moved to dismiss the complaint filed by the two SPVs for lack for standing, arguing that the plaintiff entities, as mere pass-through vehicles, suffered no injury. The real injured parties, they argued, were the noteholders who purchased the paper from plaintiffs. Judge Kaplan rejected that argument: “Although the Noteholders allegedly have been injured from the loss of their investments, this does not eliminate the Companies’ injury of . incurring a legal obligation they are unable to meet.” Id. at 608. That injury, Judge Kaplan explained, was personal to the plaintiff SPVs, and was sufficient for purposes of Article III. Id. Thus, Judge Kaplan had subject matter jurisdiction to hear the suit, id., a question that exists apart from whether plaintiffs have a cause of action. See Davis v. Passman, 442 U.S. 228, 289 n. 18, 99 S.Ct. 2264, 60 L.Ed.2d 846 (1979) (noting that question of whether a plaintiff has standing to bring suit, and thus whether the court has jurisdiction to hear the controversy, is separate from the question of whether a plaintiff has a cause of action, and that constitutional standing may exist even where a cause of action does not).

Here, Veleron is similarly situated to the special purpose entities in Parmalat. Even though BNP (the Lender) and its guarantor (Russian Machines) suffered more obvious and tangible losses, Veleron is nonetheless liable for the deficiency on the loan — even if it does not have the assets to pay off its debt. That liability is real. And it confers Article III standing on Veleron.

As for injury in fact: The purportedly greater deficiency on the loan is the harm alleged in connection with both of Veleron’s claims: market manipulation and insider trading. Thus, Veleron has demonstrated an injury in fact sufficient to permit it to pursue both claims.

. There is an alternative basis to find that Veleron has constitutional standing on its insider trading claim — which, as I explain below, is the only claim that survives Morgan Stanley’s motion for summary judgment. Veleron has Article III standing to pursue, its insider trading claim because the claim rests on a misappropriation theory — that is, Morgan Stanley caused it personal harm by exploiting Veleron’s own confidential information (its liquidity issue), to which Veleron. had a personal property right of exclusive; use. The theory of misappropriation is premised on that property right: “A company’s confidential information qualifies as property to which the company has a right of exclusive use; the undisclosed misappropriation of such information constitutes fraud akin to embezzlement.” O’Hagan, 521 U.S. at 643, 117 S.Ct. 2199. The Seventh Circuit has held that the trespass of that right of exclusive use is itself an injury for purposes of Article III, finding that “misappropriation constitutes a distinct and palpable injury that is legally cognizable under Article Ill’s case or controversy requirement.” FMC Corp. v. Boesky, 852 F.2d 981, 989-90 (7th Cir.1988).

The case on which Morgan Stanley relies, Frankel v. Slotkin, 984 F.2d 1328, 1334 (2d Cir.1993), is not to the contrary. Morgan Stanley cites Frankel for the proposition that “misappropriation of confidential information belonging to the corporation does not give rise to a Rule 10b-5 claim on behalf of the corporation when it was not injured by the fraud.” But that case considered the statutory elements of a securities fraud claim (which include a damages element), not constitutional injury. Morgan Stanley seeks to elide the statute’s damages requirement .and the constitution’s injury requirement because, as it points out again and again, Veleron has not paid any of the deficiency on the loan. But Veleron has presented evidence of statutory damages. Damages under the securities fraud statute are

determined by use of the “out-of-pocket” measure for damages ... The Supreme Court adopted the out-of-pocket measure of damages in Affiliated Ute Citizens v. United States, 406 U.S. 128, 155, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). Referring to 15 U.S.C. § 78bb(a)(l), which limits recovery to “actual damages” for violations of the Securities Exchange Act of 1934, the Supreme Court held that “the correct measure of damages under § 28 of the Act, 15 U.S.C. § 78bb(a), is the difference between the fair value of all that the [plaintiff] received and the fair value of what he would have received had there been no fraudulent conduct.” Id.

Acticon AG v. China N.E. Petroleum Holdings Ltd., 692 F.3d 34, 38 (2d Cir.2012). Recall that Veleron here was a forced seller. Veleron has presented expert evidence that Morgan Stanley’s short sales depressed the price of the stock before the sales that Veleron was forced to make — thus creating a “difference between the fair value of all that [Veleron] ... received and the fair value of what he would have received had there been no fraudulent conduct.” According, to Veler-on’s expert, this amounts to many millions of dollars.

Thus, even if Morgan Stanley’s reading of Frankel were correct (which it is not), there would be Article III standing here.

II. Summary Judgment: Applicable Standards

A party is entitled to summary judgment when there is “no genuine issue as to any material fact” and the undisputed facts warrant judgment for the moving party as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see Fed. R. Civ. P. 56(a), (c). On a- motion for summary judgment, the court must view the record in the light most favorable to the nonmoving party and draw all reasonable inferences in its favor. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

The moving party has the initial burden of demonstrating the absence of a disputed issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once such a showing has been made, the nonmoving party must present “specific facts showing that there is a genuine issue for trial.” Beard v. Banks, 548 U.S. 521, 529, 126 S.Ct. 2572, 165 L.Ed.2d 697 (2006). The party opposing summary judgment “may not rely on conclusory allegations or unsubstantiated speculation.” Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir.1998). Moreover, not every disputed factual issue is material in light of the substantive law that governs the case. “Only disputes over facts that might affect the outcome, of the suit under the governing law will properly preclude summary judgment.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

To withstand a motion for summary judgment, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. Instead, sufficient evidence must exist upon which a reasonable jury could return a verdict for the nonmoving party. “Summary judgment is designed ... to flush out those cases that are predestined to result in directed verdict.” Lightfoot v. Union Carbide Corp., 110 F.3d 898, 907 (2d Cir.1997).

III. Morgan Stanley is Not Entitled to Summary Judgement Dismissing Veleron’s Insider Trading Claim.

Section 10(b) of the Securities Exchange Act of 1934 makes it “unlawful for any person ... To use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe _” 15 U.S.C. § 78j. SEC Rule 10b-5, which implements Section 10(b), prohibits the use of “any device, scheme, or artifice to defraud” or “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. ... in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5.

“Insider trading — unlawful trading in securities based on material nonpublic information — is well established as a violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.” S.E.C. v. Obus, 693 F.3d 276, 284 (2d Cir.2012).

The Supreme Court has recognized that Section 10(b) “affords a right of action to purchasers or sellers of securities injured by its violation.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 318, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). Moreover, “defaulting pledgors ... with only a partial right to the proceeds of the sale of their stock, [have standing] to sue as ‘sellers’ under Rule 10b-5 when their stock is sold to pay off the loan against which the stock was pledged.” Madison Consultants v. Fed. Deposit Ins. Corp., 710 F.2d 57, 61 (2d Cir.1983); see also Dopp v. Franklin Nat. Bank, 374 F.Supp. 904, 909 (S.D.N.Y.1974). Thus, Veleron is a “forced seller” and falls within the “purchaser-seller” requirement of Rule 10(b). See id.

There are two theories of insider trading.

Under the “classical theory ... a corporate insider is prohibited from trading shares of that corporation based on material non-public information in violation of the duty of trust and confidence -insiders owe to shareholders.” Id. Veleron does not argue that Morgan Stanley is liable on that theory.

Instead, Veleron presses the “misappropriation” theory endorsed by the Supreme Court in United States v. O’Hagan, 521 U.S. 642, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997). That theory is “designed to protec[t] the integrity of the securities markets against abuses by ‘outsiders’ to a corporation who have access to confidential information that will affect th[e] corporation’s security price when revealed, but who owe no fiduciary or other duty to that corporation’s shareholders.” O’Hagan, 521 U.S. at 653, 117 S.Ct. 2199 (1997). Misappropriation doctrine “clothes an outsider with temporary insider status when the outsider obtains access to confidential information solely for corporate purposes in the context of ‘a special confidential relationship.’” Simon DeBartolo Grp., L.P. v. Richard E. Jacobs Grp., Inc., 186 F.3d 157, 169 (2d Cir.1999) (quoting United States v. Chestman, 947 F.2d 551, 565 (2d Cir.1991) (en banc) (internal citar tions omitted)). “[F]or purposes of both civil and criminal enforcement actions under § 10(b) of the 1934 Act and Rule 10b-5 ... ‘misappropriating] confidential information for securities trading purposes, in breach of a duty owed to the source of the information,’” results in liability for the misappropriator. United States v. Gansman, 657 F.3d 85, 90-91 (2d Cir.2011) (quoting O’Hagan, 521 U.S. at 652, 117 S.Ct. 2199).

To prevail on a misappropriation insider trading claim, a plaintiff must “establish (1) that the defendant possessed material, nonpublic information; (2) which he had a duty to keep confidential; and (3) that the defendant breached his duty by acting on or revealing the information in question.” S.E.C. v. Lyon, 605 F.Supp.2d 531, 541 (S.D.N.Y.2009) (citing United States v. Falcone, 257 F.3d 226, 232-33 (2d Cir.2001)).

Morgan Stanley argues that Veleron fails to raise a genuine issue of fact as to any of these three elements. Morgan Stanley also argues that Veleron has failed to present any competent evidence of loss causation or damages. Finally, Morgan Stanley urges that Veleron laeks standing to pursue a misappropriation insider trading claim on what is referred to as Lyon/Talbot analysis, which is one. of the arguments Veleron makes.

A. Veleron Has Raised a Question of Fact Concerning Whether the Information It Identifies as “NonPublic” Was Material.

An insider trading violation under Section 10(b) and Rule 10b-5 requires that the trading occur on the basis of “material, nonpublic information.” Obus, 693 F.3d at 284.

“The determination of materiality is a mixed question of law and fact that generally should be presented to a jury.” Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 538 (2d Cir.1999); SEC v. Collins & Aikman Corp., 524 F.Supp.2d 477, 488 (S.D.N.Y.2007) (“the materiality question is not often amenable to disposition as a matter of law.” (citing Halperin v. eBanker USA.com, 295 F.3d 352, 357 (2d Cir.2002))). “Only if no reasonable juror could determine that the undisclosed [information] would have assumed actual significance in the deliberations of the reasonable [investor] should materiality be determined as a matter of law.” Id. (second alteration in original; internal quotation marks omitted); but see Hartford Fire Ins. Co. v. Federated Dep’t Stores, Inc., 723 F.Supp. 976, 989 (S.D.N.Y.1989) (Information may be immaterial as a matter of law, for example where “a prospective merger is too inchoate to be material.”) (citing Basic, 485 U.S. at 240-41, 108 S.Ct. 978).

Nonetheless, Morgan Stanley argues that the information identified by Veleron as market-moving non-public information was in fact immaterial, both as a matter of undisputed fact and as a matter of law. It is wrong on both counts. By pointing to the words and deeds of Morgan Stanley’s own personnel at the time when the alleged insider trading was taking place, Veleron has at the very least raised a genuine issue of fact on the question of materiality. And Morgan Stanley has not come close to demonstrating that the identified non-public information was immaterial as a matter of law.

First, the facts.

Information is material if “ ‘there is a substantial likelihood that a reasonable shareholder would consider it important’ or, in other words, ‘there [is] a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable shareholder as having significantly altered the total mix of information available.’ ” SEC v. DCI Telecomms., Inc., 122 F.Supp.2d 495, 498 (S.D.N.Y.2000) (quoting Basic, Inc. v. Levinson, 485 U.S. 224, 232, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)); accord ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir.2009).

Here, there is plenty of evidence—most of it out of the mo