Securities
Puchtler v. Barclays PLC
Date: Dec. 5, 2025
Issue: Whether the Southern District of New York erred by dismissing a lawsuit alleging that Barclays misled investors about its internal controls before the bank inadvertently oversold exchange-traded notes (ETNs).
Case Summary: A unanimous Second Circuit panel affirmed the dismissal of a lawsuit accusing Barclays of misleading investors about its internal controls before the bank inadvertently oversold ETNs.
In March 2024, short-seller Michael Puchtler and a proposed class sued Barclays, alleging its statements about internal controls and certain unregistered securities sales contributed to short squeezes involving the bank’s iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX). The class alleged that, after a 2017 SEC settlement that imposed stricter registration requirements and removed Barclays’ well-known seasoned issuer status, Barclays failed to track issuances adequately. According to the class, Barclays disclosed on March 14, 2022, that it had issued more VXX securities than registered and suspended further sales, which Plaintiffs claimed drove VXX’s market price above its indicative value and caused losses for short sellers. Barclays later addressed the issue through corrective disclosures and updated SEC filings.
On March 21, 2025, Judge Lewis J. Liman of the U.S. District Court for the Southern District of New York dismissed the case, ruling Barclays’ statements were not actionable and that plaintiffs failed to plead scienter, loss causation, or material misstatements under the Private Securities Litigation Reform Act of 1995 (PSLRA). Scienter requires allegations showing knowing or reckless wrongdoing, not mere mistake. Judge Liman concluded reasonable investors would not rely on the alleged “open-ended and subjective” statements Plaintiffs cited about Barclays’ internal controls. Moreover, the statements described general, groupwide efforts to improve internal controls, rather than ETN issuances specifically.
On appeal, the Second Circuit affirmed. As to scienter, the panel explained that a complaint must allege specific facts supporting a strong and compelling inference of fraudulent intent or recklessness that outweighs any innocent explanation. In the panel’s view, Plaintiffs did not meet this standard because the complaint did not plausibly allege that the individual defendants knew Barclays lacked adequate controls when they made the challenged statements.
Plaintiffs alleged that management understood the consequences of losing well-known seasoned issuer status, but they did not allege that defendants knew of control failures, received warnings, directed others not to implement controls, or ignored information they had a duty to monitor. According to the panel, the more compelling inference was that the conduct was nonculpable: management delegated issuance tracking to a working group and lacked contemporaneous knowledge that the controls were inadequate. Without facts linking the working group’s failures to the individual defendants, the panel held that dismissal was proper.
Bottom Line: The panel affirmed dismissal after finding that Plaintiffs failed to prove that Barclays knowingly committed any illegal acts.
Document: Opinion
