680 F.3d 214 (2012)

CAPITAL MANAGEMENT SELECT FUND LTD., Investment & Development Finance Corporation, IDC Financial S.A., Global Management Worldwide Limited, individually and on behalf of all others similarly situated, Arbat Equity Arbitrage Fund Limited, Russian Investors Securities Limited, VR Global Partners, L.P., Paton Holdings, Ltd., VR Capital Group Ltd., and VR Argentina Recovery Fund Ltd., Plaintiffs-Appellants,
v.
Phillip R. BENNETT, Philip Silverman, Robert C. Trosten, Richard N. Outridge, Santo C. Maggio, Leo R. Breitman, Grant Thornton LLP, Tone N. Grant, and Refco Group Holdings, Inc., Defendants-Appellees,
Joseph J. Murphy, Ronald O'Kelley, Nathan Gantcher, Dennis A. Klejna, Perry Rotkowitz, Credit Suisse Group, Credit Suisse First Boston, Goldman Sachs Group, Inc., Goldman Sachs & Co., Bank of America Securities, LLC, Bank of America Corp., Merrill Lynch & Co., Merrill Lynch Pierce, Fenner & Smith Incorporated, JP Morgan Chase & Co., JP Morgan Securities, Inc., Sandler O'Neil & Partners, L.P., HSBC Holdings, PLC, HSBC Securities [USA] Inc., William Blair & Company, LLC, Harris Nesbitt Corp., CMG Institutional Trading, LLC, Samuel A. Ramirez & Co., Inc., the Williams Capital Group, L.P., Utendahl Capital Partners, L.P., Refco Securities, LLC, THL Entities, Defendants,
Bank Fur Arbeit Und Wirtschaft Und Osterreichische Postparkasse Aktiengesellsehaft, Gerald M. Sherer, William M. Sexton, Thomas H. Lee *215 Partners, LP, Thomas H. Lee Advisors, LLC, THL Managers V, L.L.C., THL Equity Advisors V, LLP, Thomas H. Lee Equity Fund V, L.P., Thomas H. Lee Parallel Fund V, LP, Thomas H. Lee Equity (Cayman) Fund V, LP, Thomas H. Lee Investors Limited Partnership, 1997 Thomas H. Lee Nominee Trust, Thomas H. Lee, David V. Harkins, Scott L. Jaeckel, Scott A. Schoen, Consolidated-Defendants.

Docket Nos. 08-6166-cv (L), 08-6167-cv, 08-6230-cv.

United States Court of Appeals, Second Circuit.

Argued: October 19, 2009. Decided: January 10, 2012. Amended: March 6, 2012.

*218 Scott A. Edelman (Sander Bak & Michael Shepherd, on the brief), Milbank, Tweed, Hadley & McCloy LLP, Richard L. Stone (Mark A. Strauss, on the brief), Kirby McInerney & Squire LLP, New York, NY, for Plaintiffs-Appellants; Co-Lead Counsel for Lead Plaintiffs and the Putative Class.

Claire P. Gutekunst, Jessica Mastrogiovanni, and Jed Friedman, Proskauer Rose, LLP, New York, NY, for Defendant-Appellee Richard N. Outridge.

Barbara Moses, Judith L. Mogul, and Rachel Korenblat, Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C., New York, NY, for Defendant-Appellee Robert C. Trosten.

Stuart I. Friedman, Ivan Kline, and Jonathan Daugherty, Friedman & Wittenstein P.C., New York, NY, for Defendant-Appellee William M. Sexton.

Linda T. Coberly and Bruce R. Braun, Winston & Strawn LLP, Chicago, IL, for Defendant-Appellee Grant Thornton LLP.

Laura E. Neish, Zuckerman Spaeder LLP, New York, NY, for Defendant-Appellee Tone N. Grant.

David V. Kirby, Krantz & Berman, LLP, New York, NY, for Defendant-Appellee Philip Silverman.

Susan S. McDonald, Jacob H. Stillman, Mark D. Cahn, and David M. Becker, Securities and Exchange Commission, Washington, D.C., for Amicus Curiae Securities and Exchange Commission.

Richard A. Rosen (Walter Rieman, Paul, Weiss, Rifkind, Wharton & Garrison LLP; Greg A. Danilow, on the brief), Weil Gotshal & Manges LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendants THL Partners.

Before: WINTER and POOLER, Circuit Judges.^[*]

WINTER, Circuit Judge:

Former customers ("RCM Customers") of Refco Capital Markets, Ltd. ("RCM"), a subsidiary of the now-bankrupt Refco, Inc., appeal from Judge Lynch's dismissal of their Section 10(b) securities fraud claims against former corporate officers of Refco and Refco's former auditor, Grant Thornton LLP.^[1] Appellants claim that appellees *219 breached the agreements with the RCM Customers when they rehypothecated or otherwise used securities and other property held in customer brokerage accounts.

The district court dismissed the claims for lack of standing and failure to allege deceptive conduct, see In re Refco Capital Mkts., Ltd. Brokerage Customer Sec. Litig., No. 06 Civ. 643, 2007 WL 2694469 (S.D.N.Y. Sept. 13, 2007) ("RCM I"); In re Refco Capital Mkts., Ltd. Brokerage Customer Sec. Litig., 586 F.Supp.2d 172 (S.D.N.Y.2008) ("RCM II"); In re Refco Capital Mkts., Ltd. Brokerage Customer Sec. Litig., Nos. 06 Civ. 643, 07 Civ. 8686, 07 Civ. 8688, 2008 WL 4962985 (S.D.N.Y. Nov. 20, 2008) ("RCM III") (on a motion for reconsideration).

We hold that appellants have no remedy under the securities laws because, even assuming they have standing, they fail to make sufficient allegations that their agreements with RCM misled them or that RCM did not intend to comply with those agreements at the time of contracting. We therefore affirm.

BACKGROUND

On an appeal from a grant of a motion to dismiss, we review de novo the decision of the district court. See Staehr v. Hartford Fin. Servs. Group, 547 F.3d 406, 424 (2d Cir.2008). We construe the complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir.2002). "To survive a motion to dismiss, however, a complaint must allege a plausible set of facts sufficient to raise a right to relief above the speculative level." S.E.C. v. Gabelli, 653 F.3d 49, 57 (2d Cir.2011).

a) The Parties and Their Businesses

Capital Management Select Fund Limited and other named appellants^[2] are investment companies, which, along with members of the putative class, held assets in securities brokerage accounts with RCM. RCM is one of three principal operating subsidiaries of the now-bankrupt Refco, a publicly traded holding company that, through its operating subsidiaries, provided trading, prime brokerage, and other exchange services to traders and *220 investors in the fixed income and foreign exchange markets. Appellees are various former officers and directors of Refco and/or its affiliates (the "Refco Officer Defendants"), and Refco's former auditor, Grant Thornton, LLP.

RCM operated as a securities and foreign exchange broker that traded in over-the-counter derivatives and other financial products on behalf of its clients. Although RCM was organized under the laws of Bermuda and represented itself as a Bermuda corporation, it operated from New York at all relevant times. These operations were under the leadership of, and through a sales force of account officers and brokers employed by, its affiliated corporation, Refco Securities, LLC, ("RSL"), a wholly-owned subsidiary of Refco that operated as a U.S.-based broker-dealer registered with the SEC.

b) Brokerage Account Customer Agreements

RCM Customers held securities and other assets in non-discretionary securities brokerage accounts with RCM pursuant to a standard form "Securities Account Customer Agreement" with RCM and RSL (the "Customer Agreement"). RCM Customers' securities and other property deposited in their accounts were not segregated but were commingled in a fungible pool. As a result, no particular security or securities could be identified as being held for any particular customer. Such a practice is common in the brokerage industry. See Levitin v. PaineWebber, Inc., 159 F.3d 698, 701 (2d Cir.1998) ("Customer accounts with brokers are generally not segregated, e.g. in trust accounts. Rather, they are part of the general cash reserves of the broker."); U.C.C. § 8-503 cmt. 1 ("[S]ecurities intermediaries generally do not segregate securities in such fashion that one could identify particular securities as the ones held for customers."); Adoption of Rule 15c3-2 Under the Securities Exchange Act of 1934, Exchange Act Release No. 34-7325, 1964 WL 68010, at *1 (1964) ("[W]hen [customers of broker-dealers] leave free credit balances with a broker-dealer the funds generally are not segregated and held for the customer, but are commingled with other assets of the broker-dealer and used in the operation of the business.").^[3]

The Customer Agreement included a margin provision that permitted RCM Customers to finance their investment transactions by posting securities and other acceptable property held in their accounts as collateral for margin loans extended by RCM. Under the margin provision, RCM, upon extending a margin loan to a customer, had the right to use or "rehypothecate"^[4] the customer's account *221 securities and other property for RCM's own financing purposes. For example, RCM might pledge customers' securities as collateral for its own bank loans or sell the securities pursuant to repurchase agreements ("repos").^[5] The parties dispute whether the rehypothecation rights were limited to securities serving as collateral or whether they also included securities that were excess collateral. We discuss this dispute, infra.

We briefly provide a generic background. From an ex ante perspective, such margin provisions provide distinct, but related, economic benefits to both the brokerage and its customers. For the customers, the margin provision provides the ability to invest on a leveraged basis and thereby earn amplified returns on their investment capital. As for the brokerage, the ability to rehypothecate its customers' securities presents, among other things, an additional and inexpensive source of secured financing. See Michelle Price, Picking over the Lehman Carcass—Asset Recovery, Banker, Dec. 1, 2008, available at 2008 WLNR 24064913 ("[Without rehypothecation rights] the prime broker would have to use its unsecured credit facilities, the cost of which is currently in the region of 225 to 300 basis points above that of secured credit.").

While these types of margin provisions provide economic benefits to both parties, like any creditor-debtor arrangement they also create counterparty risks. The brokerage bears the risk that its customers default on margin loans that could become under-secured due, for example, to a precipitous decline in the value of the posted collateral. Likewise, of course, the customers face the possibility that the brokerage, having rehypothecated its customers' securities, fails, making it unable to return customer securities after those customers meet their margin debt obligations.

Counterparty risks associated with margin financing have long been recognized by industry participants and regulators alike. In the United States, for example, margin financing has been subject to federal^[6] and state^[7] regulation, and, even longer still, to self-imposed limitations by brokers and self-regulating organizations.^[8] In general, margin restrictions attempt to reduce the counterparty risk associated with margin financing by limiting the types of securities that can be posted by an investor as collateral for a margin loan and limiting the *222 amounts that can be borrowed against that collateral.^[9]

Similarly, at least in the United States, brokers' rehypothecation activities have long been restricted by federal^[10] and state law,^[11] and by rules promulgated by the principal stock exchanges.^[12] These restrictions generally limit a broker's ability to commingle its customers' securities without their consent, and limit a broker's rehypothecation rights with respect to a customer's "excess margin securities" i.e., securities not deemed collateral to secure a customer's outstanding margin debt, and "fully-paid securities," i.e., securities in a cash account for which full payment has been made.^[13]

The upshot of these restrictions is that in the United States, brokers and investors alike are limited in the amount of leverage that is available to amplify returns. However, since the development of globalized capital and credit markets, investors have sought to avoid these limitations by seeking unrestricted margin financing through, among other sources, unregulated offshore entities. See, e.g., Metro-Goldwyn-Mayer, Inc. v. Transamerica Corp., 303 F.Supp. 1354 (S.D.N.Y.1969) (leveraged buyout of Metro-Goldwyn-Mayer financed through the Eurodollar market, thus avoiding U.S. margin restrictions); Martin Lipton, Some Recent Innovations to Avoid the Margin Regulations, 46 N.Y.U. L.Rev. 1 (1971). In recent years, U.S.-based broker-dealers have satisfied investor demand for unrestricted margin financing by providing financing to institutional investors,—e.g., hedge funds—through, inter alia, unregulated foreign affiliates that are not subject to U.S. margin or rehypothecation restrictions. See Noah Melnick et al., Prime Broker Insolvency Risk, Hedge Fund J., Nov. 2008 ("US prime brokers commonly rely on [foreign] unregulated affiliates for margin lending or securities lending and/or to act as custodians in non-US jurisdictions."); Sherri Venokur & Richard Bernstein, Protecting Collateral against Bank Insolvency Risk—Part I, Sept. 8, 2008, at 1 ("U.S. registered broker-dealers enter into derivatives transactions through their unregulated affiliates in order to reduce capital reserve requirements but also to be able to use counterparty *223 collateral."); Roel C. Campos, SEC Comm'r, Remarks before the SIA Hedge Funds & Alternative Investments Conference (June 14, 2006) (noting that certain hedge fund financing is generally booked through foreign, unregulated affiliates).

In the instant case, RCM held itself out as, and the record indicates that at least some of the RCM Customers understood it to be, an unregulated offshore broker.

c) The Lawsuit

The event giving rise to this action is the collapse of Refco, RCM's now-bankrupt parent corporation. On October 20, 2005, a little more than two months after issuing an initial public offering of its stock, Refco announced a previously undisclosed $430 million uncollectible receivable and disavowed its financial statements for the previous three years. The uncollectible receivable stemmed, in part, from losses suffered by Refco and several of its account holders during the late 1990s. Rather than disclose its losses to the public and its investors at that time, Refco's management devised and implemented a "round robin" loan scheme to conceal the losses. The first part of this scheme involved Refco transferring its uncollectible receivables to the books of Refco Group Holdings, Inc. ("RGHI"), an entity owned and controlled by appellee-defendant Phillip R. Bennett, Refco's then-President, CEO, and Chairman. Then, in order to mask the magnitude and related-party nature of the RGHI receivable, a Refco entity (alleged by plaintiffs typically to be RCM) would extend loans to multiple unrelated third parties that would in turn lend the funds to RGHI to pay down the uncollectible receivables. In this manner, Refco effectively eliminated the uncollectible related-party receivable from its books just prior to each relevant financial period but would unwind the loans shortly thereafter. The transactions allegedly took place over the course of six years, between 1998 and 2004, and were never disclosed in Refco's public securities filings. By 2004, the RGHI receivable had grown to an amount alleged to be in excess of $1 billion.

Prior to Refco's 2005 disclosure, beginning in late 2003, THL, a private equity investment fund that focuses on the acquisition of equity stakes in mid-to-large capitalization companies, began exploring investment opportunities in Refco, and ultimately completed a leveraged buyout in August 2004.

Following Refco's disclosure of its $430 million uncollectible receivable, customers holding accounts with RCM, including appellants, attempted to withdraw their assets from RCM. This began the proverbial "run on the bank," and, on October 13, 2005, Refco announced a unilateral 15-day moratorium on all RCM trading activities. On October 17, 2005, Refco, along with RCM and several other Refco affiliates, filed for Chapter 11 bankruptcy protection in the Southern District of New York. In a December 30, 2005 bankruptcy filing, RCM disclosed that it owed its customers approximately $4.16 billion, while holding only $1.905 billion in assets.

Along with a host of other plaintiffs who brought actions in the wake of Refco's collapse,^[14] on January 26, 2006, plaintiff-appellant Global Management Worldwide Limited, an investment fund organized under *224 the laws of Bermuda, filed a putative class action on behalf of all brokerage customers of RCM who held securities with RCM and/or RSL between October 17, 2000 and October 17, 2005. On September 5, 2006, Global Management Worldwide filed a Consolidated Amended Class Action Complaint, in which Arbat Equity Arbitrage Fund Limited and Russian Investors Securities Limited, both "commonly controlled investment funds," were added as Co-Lead Plaintiffs of the putative class. The amended complaint named appellees as defendants. The complaint alleges that Refco's corporate officers caused RCM to improperly sell or lend securities and other assets from RCM Customers' trading accounts to various Refco affiliates in order to fund Refco's operations. The complaint further alleges that this practice was approved by, and well known to, all members of Refco senior management.

On September 13, 2007, the district court dismissed the putative class action suit for plaintiffs' failure to allege deceptive conduct. However, it granted plaintiffs leave to replead as to certain defendants. RCM I, 2007 WL 2694469, at *12-13. On October 9, 2007, two separate groups of plaintiffs—one group associated with investment fund VR Global Partners, L.P., ("VR Plaintiffs"), and a second group associated with investment fund Capital Management Select Fund Ltd. ("CM Plaintiffs")—filed individual actions based on allegations similar to those raised in the putative class action complaint. Thereafter, on November 20, 2007, the district court consolidated all three actions for pretrial purposes, subsequent to which the lead plaintiffs in the putative class action filed a Second Amended Complaint.

In the consolidated action, all plaintiffs alleged violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 against all Refco Officer Defendants, and violations of Rule 10b-16 against all Refco Officer Defendants who, together with RCM and Refco, allegedly extended margin credit to RCM Customers without adequately disclosing RCM's use of Customer securities. 15 U.S.C. §§ 78j(b), 78l (Sections 10(b) and 20(a) of the Exchange Act); 17 C.F.R. §§ 240.10b-5, .10b-16 (Rules 10b-5 and 10b-16). In addition, VR Plaintiffs alleged violations of Section 10(b) and Rule 10b-5 as against Grant Thornton.

On August 28, 2008, the district court granted motions to dismiss filed by various Officer Defendants and Grant Thornton. RCM II, 586 F.Supp.2d at 174. In granting the motions to dismiss, the court rejected RCM Customers' Section 10(b) claim for lack of standing under the purchaser-seller rule of Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). RCM II, 586 F.Supp.2d at 178-81. As a separate ground for dismissal, the court ruled that plaintiffs failed to adequately plead deceptive conduct through any affirmative act or misrepresentation, breach of fiduciary duty, or any other manner. Id. at 181-94.

Finally, as to RCM Customers' Section 20(a) claims, the court concluded that because plaintiffs could not bring a claim against any defendant for a primary violation of Section 10(b) and Rules 10b-5 and 10b-16, plaintiffs necessarily lacked standing to bring a controlling person action under Section 20(a). Id. at 195.

In considering RCM Customers' request for leave to replead, the court first noted that all plaintiffs had the benefit of filing their complaints after the court's September 13, 2007 Opinion and Order, which detailed the deficiencies in the initial class-action pleading. Id. at 196. The court also observed that VR Plaintiffs and CM Plaintiffs all had more than adequate access to Refco's internal files, including books, records, and corporate minutes, as *225 a result of their participation in the Refco bankruptcy proceeding. Id. Finding no indication that RCM Customers could provide additional facts to cure their pleading defects, the district court denied RCM Customers' request for leave to replead. Id.

On September 12, 2008, plaintiffs filed a motion to reconsider the district court's denial of leave to replead. In their motion, RCM Customers asserted that, given the opportunity to replead, they would be able to establish deceptive conduct by showing that RCM improperly rehypothecated the Customers' fully-paid securities. The district court granted the motion for reconsideration but again denied RCM Customers leave to replead. RCM III, 2008 WL 4962985. The court determined that even if RCM Customers could establish deceptive conduct based on RCM's rehypothecation of fully-paid securities, plaintiffs still had no standing as "actual purchaser[s] or seller[s]" under Blue Chip Stamps. Id. at *3.

This appeal followed.

DISCUSSION

RCM Customers seek to recover under Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b). RCM Customers assert that they were deceived by, inter alia, the terms of the Customer Agreement and RCM's written Trade Confirmations, RCM's written account statements, and oral representations by certain appellees.

a) Section 10(b)

We turn first to Section 10(b), which makes it unlawful 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(b). The elements of a Section 10(b) claim are familiar to all federal courts. A plaintiff claiming fraud must allege scienter, "a mental state embracing intent to deceive, manipulate, or defraud," Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)), and must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). A "strong inference of scienter" is one that is "more than merely `reasonable' or `permissible'—it must be cogent and compelling, thus strong in light of other explanations." Tellabs, 551 U.S. at 323-24, 127 S.Ct. 2499. This strong inference of scienter can be established by alleging either "(1) that defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness." ECA & Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir.2009).

Although no claim for breach of contract is pursued by appellants, the gravamen of their Section 10(b) claim is such a breach. Breaches of contract generally fall outside the scope of the securities laws. See Gurary v. Winehouse, 235 F.3d 792, 801 (2d Cir.2000) ("[T]he failure to carry out a promise made in connection with a securities transaction is normally a breach of contract and does not justify a Rule 10b-5 action ... unless, when the promise was made, the defendant secretly intended not to perform or knew that he could not perform." (citation and internal quotation marks omitted) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir.1993))); Desert Land, LLC v. Owens Fin. Grp., Inc., 154 Fed.Appx. 586, 587 (9th Cir.2005) ("[T]he mere allegation that *226 a contractual breach involved a security does not confer standing to assert a 10b-5 action.").

However, although "[c]ontractual breach, in and of itself, does not bespeak fraud," Mills, 12 F.3d at 1176, it may constitute fraud where the breaching party never intended to perform its material obligations under the contract. See Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir.1994) ("The failure to fulfill a promise to perform future acts is not ground for a fraud action unless there existed an intent not to perform at the time the promise was made."). Private actions may succeed under Section 10(b) if there are particularized allegations that the contract itself was a misrepresentation, i.e., the plaintiff's loss was caused by reliance upon the defendant's specific promise to perform particular acts while never intending to perform those acts. See Wharf (Holdings) Ltd. v. United Int'l Holdings, Inc., 532 U.S. 588, 121 S.Ct. 1776, 149 L.Ed.2d 845 (2001) (defendant violated Section 10(b) when it sold a security while never intending to honor its agreement); Ouaknine v. MacFarlane, 897 F.2d 75, 81 (2d Cir.1990) (Section 10(b) plaintiff adequately alleged facts to imply the defendants intended to deceive when they issued an offering memorandum); Luce v. Edelstein, 802 F.2d 49, 55-56 (2d Cir.1986) (allowing Section 10(b) claim where plaintiff alleged defendant's promises made in consideration for a sale of securities were known by defendant to be false); cf. Mills, 12 F.3d at 1176 (denying Section 10(b) claim because plaintiff alleged no facts probative of defendant's intent at contract formation).

We have also held that where a breach of contract is the basis for a Section 10(b) claim, the "promise ... must encompass particular actions and be more than a generalized promise to act as a faithful fiduciary." Luce, 802 F.2d at 55.

With respect to the present action, we add that a simple disagreement over the meaning of an ambiguous contract combined with a conclusory allegation of intent to breach at the time of execution will not do. Either the alleged breach must be of a character that alone provides "strong circumstantial evidence" of an intent to deceive at the time of contract formation, ECA, 553 F.3d at 198, or there must be allegations of particularized facts supporting a "cogent and compelling" inference of that intent, Tellabs, 551 U.S. at 324, 127 S.Ct. 2499; Int'l Fund Mgmt. S.A. v. Citigroup Inc., 822 F.Supp.2d 368, 382-83 (S.D.N.Y.2011). In the present case, there are no particularized allegations of fact supporting such an inference of deceptive intent at the time of execution of the Customer Agreements. Therefore, the requisite intent must be inferred, if at all, from the Customer Agreement itself and the nature of the alleged breach.

b) The Customer Agreement as a Misrepresentation

RCM Customers claim that they were deceived into believing that their securities and other assets would be safeguarded, and, in particular, that RCM would not rehypothecate excess margin or fully-paid securities. They allege that, in fact, RCM routinely rehypothecated all of its customers' securities, regardless of the customers' outstanding margin debt, and did so from the start of each customer's account. The allegations as to RCM's conduct are sufficient to satisfy the element of intent at the time of contract formation. The crux of the issue, therefore, is whether RCM's rehypothecation of securities even when they were not deemed collateral was so inconsistent with the provisions of the Customer Agreement that the Agreement *227 was itself a deception.^[15]

Section B^[16] of the Customer Agreement establishes the terms by which RCM would extend margin financing to RCM Customers, and provides in relevant part:

B. MARGIN

This Margin section applies in the event [RCM] finances any of your Transactions from time-to-time in Financial Instruments.

1. Security Interest. [RCM] reserves the right to require the deposit or maintenance of collateral (consisting of cash, United States government obligations or such other marketable securities or other property which may be acceptable to [RCM]) to secure performance of your obligations to [RCM]. ... To secure your obligations under Transactions entered into pursuant to this Agreement, you hereby grant to [RCM] and its affiliates (collectively, "Refco Entities") a first priority, perfected security interest in all of your cash, securities and other property (whether held individually or jointly with others) and the proceeds thereof from time-to-time in the possession or under the control of such Refco Entities, whether or not such cash, securities and other property were deposited with such Refco Entities.

2. Rights and Use of Margin. [RCM] shall have the right to loan, pledge, hypothecate or otherwise use or dispose of such cash, securities and other property free from any claim or right, until settlement in full of all Transactions entered into pursuant to this Agreement. [RCM's] sole obligation shall be to return to you such cash, like amounts of similar cash, securities and other property (or the cash value thereof in the event of any liquidation of collateral) to the extent they are not deemed to be collateral to secure Transactions entered into pursuant to this Agreement with any Refco Entities or have not been applied against obligations owing by you to Refco Entities, whether as a result of the liquidation of positions and any Transactions entered into pursuant *228 to this Agreement or otherwise.

App. 154.

Section B.1 states that upon RCM's extension of margin financing to a customer—even a dime—RCM would obtain a "first priority, perfected security interest in all of [RCM Customers'] cash, securities and other property (whether held individually or jointly with others) and the proceeds thereof." App. 154. Section B.1 also gave RCM the right to demand additional collateral in the event that a customer's collateral became insufficient to secure the customer's outstanding margin debt— if, for example, the value of the customer's securities collateral decreased in value such that RCM's margin loan was under-secured.

In addition, Section B.2 states that, if a customer's securities are no longer deemed collateral to secure the customer's outstanding margin debt, RCM was obligated to "return" such securities to the customer. It is evident that the promised "return" did not contemplate either securities or their value being returned to the actual possession of the RCM Customers. Margin accounts move up or down with both the buying or selling by the customer and the price movements of the collateral. The constant transfer of collateral back and forth between accounts in RCM's name or a customer's name would have imposed administrative costs on all parties, and no one argues that such constant transfers were required by the Customer Agreement. Moreover, all of the RCM Customers had to have been aware that, if RCM was not asking for more collateral, some of their securities were probably excess collateral. However, there is no allegation or indication that any RCM Customer ever noticed or complained about the lack of back-and-forth transfers.

In context, therefore, "return" must mean that, with respect to securities not deemed to be collateral, the customer could demand their return from the fungible pool. Moreover, in the case of a requested "return," RCM had the option of transferring physical securities or the "cash value thereof in the event of any liquidation of collateral." Thus, RCM, after rehypothecating all its customers' securities, could have satisfied a demand for "return" of excess securities by paying their cash value in lieu of the actual securities.

On review of the Customer Agreement, we conclude that it unambiguously warned the RCM Customers that RCM intended to exercise full rehypothecation rights as to the Customers' excess margin securities.

Stripped of verbiage not pertinent to this dispute and substituting a crude and colloquial description for the specified collateral, Sections B.1 and 2 read:

B. Margin

This Margin section applies in the event [RCM] finances any of your Transactions ... in [your account].

1. Security Interest. [RCM] reserves the right to require ... [appropriate stuff as] collateral... [T]o secure performance of your obligations to [RCM] ... you hereby grant to [RCM] ... a first priority, perfected security interest in all your [stuff] in the possession of ... [Refco Entities]....

2. Rights and Use of Margin. [RCM] shall have the right to ... use or dispose of such [stuff] free from any claim or right, until settlement in full of all Transactions.... [RCM's] sole obligation shall be to return to you such [stuff] ... to the extent [it is] not *229 deemed to be collateral to secure Transactions....

App. 154.

Appellants' argument that the first use of "such [stuff]" in B.2 refers only to "stuff" deemed to be collateral is not consistent with the language of the agreement. The only referent for the first "such [stuff]" is "all your [stuff]" in B.1. Moreover, the second use of "such [stuff]" in B.2 is modified by "to the extent [it is] not deemed to be collateral," a most peculiar modifier if "such [stuff]" means only "stuff" deemed to be collateral.

RCM Customers also allege that RCM rehypothecated Customer assets at times that RCM Customers had no outstanding margin debt in breach of the Customer Agreement. However, the Customer Agreement provides only that the cash value of securities not deemed collateral shall be "return[ed]" to the customers, i.e., recorded on RCM's books as money payable on demand to the particular customer. A perfectly plausible reading of the Agreement is that, on the occasions that some customers had no outstanding margin transactions, they had only a right to demand payment of the value of 100 percent of the securities that had been given to RCM.

There is, therefore, no disparity between the provisions of the Customer Agreement and RCM's conduct remotely supportive of a claim that the Agreement was a misrepresentation actionable under Section 10(b).

The Trade Confirmation also supports this conclusion. Section D.2 of the Customer Agreement incorporates the terms of the Trade Confirmation, which include, among other things, a reiteration of RCM's rights to "sell, pledge, hypothecate, assign, invest or use, such collateral or property deposited with it." App. 712.

c) Consistency with Federal and State Law

RCM Customers also contend that our interpretation of Section B.2 is inconsistent with federal and/or state law and that ambiguities in the Customer Agreement should be construed to comply with applicable legal rules.^[17] RCM Customers argue that RCM was subject to SEC Rules 15c3-1, 17 C.F.R. § 240.15c3-1, and 15c3-3, 17 C.F.R. § 240.15c3-3,^[18] and New York state law, which would have limited RCM's rehypothecation rights with respect to excess margin securities. However, even assuming arguendo the existence of ambiguities in the Customer Agreement, we disagree.

The district court rejected these arguments regarding federal law based on our decision in United States v. Finnerty, 533 *230 F.3d 143 (2d Cir.2008). RCM II, 586 F.Supp.2d at 191-92. Finnerty held that a defendant may be liable under Section 10(b) and Rule 10(b)(5) for violation of a NYSE rule only if the defendant had made a representation regarding compliance with the rule. Finnerty, 533 F.3d at 149-50. The district court concluded that because plaintiffs made no allegations that "RCM (or any Refco affiliate or employee) made any representation that RCM was subject to, or would comply with, any such regulations, much less [Rules 15c3-1 and 15c3-3]," RCM could not be found liable under Section 10(b) and Rule 10b-5 for violating Rules 15c3-1 and 15c3-3. RCM II, 586 F.Supp.2d at 192.

Here, more than simply remaining silent as to whether it was complying with U.S. law, RCM represented that it was not a U.S.-regulated company. Although RCM did state that it was subject to "all applicable laws" in the trade confirmations, that simply raises the question of what laws were applicable. In short, RCM's alleged violation of federal law does not in and of itself constitute deceptive conduct.

The Security and Exchange Commission has expressed a concern, as amicus curiae, that affirming the district court in this regard will viscerate the so-called "shingle theory" of broker-dealer liability under Section 10(b), and will be inconsistent with our recent decision in VanCook v. SEC, 653 F.3d 130 (2d Cir.2011). We disagree.

Under the shingle theory, a broker makes certain implied representations and assumes certain duties merely by "hanging out its professional shingle." Grandon v. Merrill Lynch & Co., Inc., 147 F.3d 184, 192 (2d Cir.1998).

In VanCook, we held that VanCook's late-trading practice "violated [Rule 10b-5] because it constituted an implied representation to mutual funds that" VanCook was complying with a rule restricting late-trading. VanCook, 653 F.3d at 141. We reasoned that "by submitting orders after that time for execution at the current day's [Net Asset Value], VanCook made an implied representation that the orders had been received before 4:00 p.m., because such late trading incorporates an implicit misrepresentation by falsely making it appear that the orders were received by the intermediary before 4:00 p.m. when in fact they were received after that time."