The following e-filed documents, listed by NYSCEF document number (Motion 002) 76, 77, 78, 79, 80, 81, 93, 141, 148, 149, 150, 151 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 003) 82, 83, 84, 85, 86, 87, 88, 89, 90, 153, 154, 155, 156 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 004) 91, 92, 147 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 005) 96, 97, 98, 99, 100, 101, 102, 103, 104, 144 were read on this motion to/for DISMISSAL. The following e-filed documents, listed by NYSCEF document number (Motion 006) 105, 106, 157 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 007) 107, 108, 109, 110, 111, 152 were read on this motion to/for DISMISSAL. The following e-filed documents, listed by NYSCEF document number (Motion 008) 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 145 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 009) 126, 127, 146 were read on this motion to/for DISMISS. Summary of Decision The case against Viacom/CBS (Viacom) must be dismissed because Viacom can not be held liable under the Securities Act of 1933 (the 1933 Act) for the undisclosed unknown (i) synthetic position of Archegos Capital Management, LP (Archegos) created pursuant to certain “total return swap agreements” with certain broker dealers/swap counter-parties, some of whom happen to have been underwriters in connection with the SPOs (hereinafter defined) and (ii) block sales of Viacom stock that those swap counter-parties planned and executed when Archegos could not meet its margin call. As alleged, Archegos’ position was concealed to Viacom because Archegos was not required to make any public filings in respect of its Viacom position for two reasons. First, its actual stock ownership was below the amount which requires making a filing by the Securities and Exchange Commission (the SEC), and second, its synthetic position created under the “total return swap agreements” also did not require disclosure under SEC rules. Under the 1933 Act, Viacom also had no duty or obligation to perform due diligence on its underwriters as to any proposed conflicts that the underwriters might have had. The duty imposed upon issuers is to present truthful and accurate material information about their financial position, outlook, risk factors that affect or could impact their performance and the manner in which their books and records, outlook and guidance are created and audited. Thus, omissions alleged, all of which are predicated on an underwriter’s potential undisclosed conflicts are simply not within the ambit of an issuer’s due diligence obligations and statements and omissions in the offering documents relating to the underwriters are simply not attributable to the issuer. The diligence required of an issuer as to an underwriter is set forth in the statute and in the regulations and is limited to, among other things, understanding that the underwriters are capable of bringing the securities to market and that failing the market clearing the offering that the underwriters are capable of buying a pre-set amount of unsold shares — i.e., stabilizing transactions — which are disclosed. Neither the statute nor the SEC rules impose any further duty of diligence upon issuers with respect to the underwriters, nor make the issuer a guarantor of the underwriters undisclosed trading positions. Implying any such duty runs afoul of the principles articulated in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 US 164 (1994). It does not therefore matter that issuers do not have a due diligence defense under the 1933 Act. For completeness, FINRA Rule 5270 also does not provide a predicate for a 1933 Act claim against Viacom because Viacom is neither a FINRA member nor are they associated with one for the purpose of imposing liability under the 1933 Act. Because the Section 11 and 12 claims are dismissed as against Viacom, the Section 15 claims against Robert M. Bakish, Katherine Gill-Charest, Shari E. Redstone, Candace K. Beinecke, Barbara M. Byrne, Linda M. Griego, Robert N. Klieger, Judith A. McHale Ronald L. Nelson, Charles E. Phillips, J., Susan Schuman Nicole Seligman, and Frederick O. Terrell (collectively, hereinafter, the Individual Defendants) must be dismissed as well. The Conflicted Defendants (hereinafter defined) however are not entitled to dismissal of this lawsuit. The claims in this lawsuit are based on their planned undisclosed massive and uncoordinated block sales of approximately $20 billion of Viacom stock conducted simultaneously with the $2.65 billion of SPOs that the Conflicted Defendants were underwriting to close out their exposure under certain “total return swap agreements” while earning underwriter fees in connection with those SPOs. Taking the allegations of the AC (hereinafter defined) as true, the Conflicted Defendants unquestionably had an undisclosed material conflict of interest and there was a material omission of that material conflict in the Offering Documents (hereinafter defined) because their approximately $20 billion of market sales necessarily put substantial downward pressure on the price of Viacom’s stock in the SPOs. The Conflicted Defendants’ claim that there were internal ethical walls separating their broker-dealer business from their underwriter business does not change the result. As an initial matter, this alleged fact would only create an issue of fact going forward, not a basis for dismissal. In any event, basic compliance functions at the Conflicted Defendants would have placed someone in a position to look over these walls to prevent exactly what happened here from happening. The Underwriter Defendants (that are not Conflicted Defendants) are also not entitled to dismissal of this lawsuit. The AC does not establish their affirmative due diligence defense. It does not matter that the size of Archegos’ position and the vulnerability of Viacom’s stock price and the SPOs were concealed from the public and from Viacom. They were not concealed from the Conflicted Defendants. As discussed below, the Underwriter Defendants had an obligation to ask each other about whether they had any conflicts, including conflicts that could undermine the market for Viacom’s stock, and could not rely on the lead underwriters to come forward without asking any questions, i.e., the Conflicted Defendants in meeting their obligation (17 CFR §230.176). To the extent that the Underwriter Defendants ultimately can establish an affirmative due diligence defense based on having asked all appropriate questions and conducted the appropriate analysis, this is not established by the AC on its face, and is otherwise not ripe for adjudication at this stage of the proceeding (In re WorldCom, Inc. Sec. Litig., 346 FSupp2d 628, 683 [SD NY 2004]; In re Lehman Bros Sec. & ERISA Litig., 799 FSupp2d 258, 317 [SD NY 2011]). The Relevant Facts and Circumstances This is a lawsuit caused by the failed stock speculation of Sung Kook Hwang and the financial collapse of his family run office, Archegos and the dissemination of those failures by the Conflicted Defendants (i.e., certain of the Underwriter Defendants who also served as undisclosed counter-parties to massive “total return swap agreements” with Archegos) on the uninformed and unsuspecting plaintiff investors who purchased common and preferred stock in the approximately $2.65 billion1 Secondary Public Offerings (the SPOs) of Viacom. The SPOs were effective on March 22, 2021 and closed on March 26, 2021. More specifically, the Plaintiffs allege that during the SPOs and between March 22, 2021 and March 28, 2021, the Conflicted Defendants dumped in certain block sales approximately $20 billion of Viacom Stock — i.e., almost 10 times the size of the offering and representing a 34 percent equity stake in the company — which they held pursuant to certain “total return swap agreements” entered into with Archegos (NYSCEF Doc. No. 74,
65-71). The Plaintiffs allege that these massive block sales were anticipated during the SPOs and were never disclosed. Thus, the Plaintiffs allege that the defendants violated Sections 11, 12(a) and 15 of the 1933 Act. A. Mr. Hwang and Archegos Mr. Hwang was a former New York-based hedge fund manager who had a well-known history of extensive and egregious investment-related misconduct (NYSCEF Doc. No. 74, 66). To wit, before founding Archegos in 2013, Mr. Hwang had founded and run Tiger Asia Management. The SEC filed insider-trading and stock manipulation charges against him. To settle those charges, he closed that fund, paid more than $44 million in fines and was barred from the investment-advisory industry (id.,
