District Court Dismisses Putative Class Action Asserting Securities Fraud, Holding That Plaintiffs Failed To Adequately Allege Actionable Material Misstatements Or Omissions And Scienter
On April 30, 2019, the United States District Court for the District of Massachusetts granted a motion to dismiss a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder against a biopharmaceutical company (the “Company”) and certain of its executives, and claims under Section 20(a) of the Exchange Act against the executives. In re Ocular Therapeutix, Inc. Securities Litigation, No. 17-CV-12288 (D. Mass. Apr. 30, 2019). Plaintiffs alleged that defendants made misstatements regarding manufacturing issues with respect to an ocular pain drug developed by the Company. The Court held that plaintiffs failed to adequately allege actionable misstatements or omissions and scienter, and granted the motion to dismiss.
Second Circuit Summarily Affirms Dismissal Of Putative Securities Fraud Class Action Against Pharmacy Benefits Manager Company, Finding That Plaintiffs Failed To Adequately Allege Material Misstatements And Scienter
On May 7, 2019, the United States Court of Appeals for the Second Circuit summarily affirmed the judgment by Judge Edgardo Ramos of the United States District Court for the Southern District of New York granting defendants’ motion to dismiss in a putative securities class action. In re Express Scripts Holdings Co. Securities Litigation No. 18-cv-1850 (2d Cir. May 7, 2019). Plaintiffs alleged that defendants—a pharmacy benefit manager (“the Company”) and certain of its officers—violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) by making materially false or misleading statements in connection with the purchase or sale of securities. As discussed in our prior post, the District Court granted defendants’ motion to dismiss, finding that plaintiffs did not adequately plead that defendants made any misleading statements or that defendants acted with the requisite scienter. On appeal, plaintiffs argued that the District Court incorrectly held that the Amended Complaint failed to adequately allege that defendants made materially false and misleading statements and omission and acted with scienter. The Second Circuit affirmed in a summary order. Summary orders do not have binding precedential effect.
New York Federal Court Dismisses Charter School’s Section 10(b) Claims For Lack Of Standing, Rejecting Plaintiff’s Constructive Seller Theory
On April 10, 2019, Judge Loretta A. Preska of the United States District Court for the Southern District of New York dismissed an action asserting violations of Section 10(b) of the Securities and Exchange Act of 1934 and claims under state law against a broker-dealer (the “Broker-Dealer”) and several individuals who participated in a bond offering facilitated by the Broker-Dealer. Palm Beach Maritime Museum v. Hapoalim Sec. USA, Inc., 19 Civ. 908 (LAP), 2019 WL 1950139 (S.D.N.Y. Apr. 10, 2019). Plaintiff, a non-profit corporation approved as a charter school in Florida, alleged that defendants made materially false statements in connection with a bond purchase agreement to finance plaintiff’s purchase and expansion of property. The Court held that plaintiff lacked standing to pursue its Section 10(b) claim because it was not the buyer or seller of a security.
The Second Circuit Affirms Denial Of Plaintiffs’ Motion For Leave To Amend Securities Class Action On The Ground That Any Such Amendment Would Be Futile
On April 29, 2019, the United States Court of Appeals for the Second Circuit affirmed the denial of plaintiffs’ motion for leave to file an amended complaint alleging securities fraud against an international pharmaceutical corporation (the “Company”) and several of its past and present executives. Steamfitters’ Indus. Pension Fund v. Endo Int’l PLC, 18-1669-cv (2d Cir. Apr. 29, 2019). Upon reviewing the district court’s decision de novo, the Second Circuit concluded that an amendment would be futile because the alleged misrepresentations and omissions contained in plaintiffs’ proposed amended complaint (the “Proposed Amended Complaint”) failed to allege any plausible violation of Section 10(b) and 20(a) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5.
Supreme Court Hears Argument On Whether Mere Negligence Is Sufficient To Sustain Investor Claims Under Section 14(e) Of The Exchange Act In Connection With A Tender Offer And—Perhaps—Whether A Private Right of Action Exists Under Section 14(e) At All
On April 15, 2019, the Supreme Court heard argument in a closely-watched case asking whether mere negligence is sufficient to plead and prove a claim under Section 14(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) in connection with a tender offer and – perhaps – whether a private right of action exists under Section 14(e) at all. Emulex Corporation, et al. v. Varjabedian, No. 18-459 (Apr. 15, 2019). The argument was particularly lively, with the Justices posing numerous questions about both a defendant’s required mental state, as well as whether an implied right of action ought to be recognized – although it remains unclear whether the Court will actually decide the latter question.
District Court Dismisses Putative Class Action, Holding That Company’s Optimistic Guidance Fell Within PSLRA Safe Harbor Provision
On March 15, 2019, Judge Edward M. Chen of the United States District for the Northern District of California dismissed a putative class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a camera technology company (“Company”), along with its officers and executives. Park v. GoPro, Inc., et. al., 18-cv-00193-EMC (N.D. Cal. Mar. 15, 2019). Plaintiffs claimed defendants made false statements during an earnings call following the announcement of the Company’s results for the third quarter of the 2017 fiscal year (“Q3 2017”), and engaged in suspicious stock transactions. The Court dismissed the action on the ground that plaintiffs did not adequately plead falsity or scienter.
District Of New Jersey Dismisses Putative Securities Class Action Against Technology Company Based On Its Statements About Its International Distributor Agreement
On February 22, 2019, Judge Kevin McNulty of the United States District Court for the District of New Jersey granted defendants’ motion to dismiss a putative class action against an Israeli-based technology company (“Company”) and its senior officers, asserting violations of Sections 10(b) and 20(a) of the Exchange Act of 1934, and Rule 10b-5. Padgett v. RIT Techs. Ltd., No. 2:16-cv-4579, 2019 WL 913154 (D.N.J. Feb. 22, 2019). Plaintiffs alleged defendants failed to disclose the extent of the Company’s reliance on an agreement with a non-exclusive distributor to provide its products and services in the Commonwealth of Independent States region (“CIS”). The Court dismissed the amended complaint without prejudice, holding that plaintiffs failed to adequately allege how defendants’ public statements and failure to use specific adjectives to characterize the distributor were misleading to investors.
Supreme Court Seeks Solicitor General’s Input On Granting Certiorari For Case Raising The Question Of Whether A Non-U.S. Corporate Issuer With No Involvement In Establishing Or Selling ADRs Can Be Subject To Section 10(b) As Long As Plaintiff’s Alleged Securities Transaction Was “Domestic”
On January 14, 2019, the United States Supreme Court invited the Solicitor General to file a brief expressing the views of the United States in connection with a pending petition for writ of certiorari regarding whether, in determining if Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) may apply to a securities transaction—including one involving American Depositary Receipts (“ADRs”) which are not sponsored by the foreign issuer and are traded on over-the-counter markets—it is sufficient to show that the transaction itself was domestic. Toshiba Corp. v. Auto. Indus. Pension Trust Fund, et al., No. 16-56058 (Jan. 14, 2019). Under the Ninth Circuit decision for which review is being sought, a foreign issuer that has no involvement in establishing or selling the ADRs can be subject to Section 10(b) as long as the plaintiff purchased or sold the ADRs in a domestic transaction. As noted by the defendant and various amici in support of the petition for certiorari, the Ninth Circuit’s holding significantly extends the extraterritorial application of Section 10(b) to non-U.S. companies which have not elected to avail themselves of the U.S. capital markets.
Eastern District Of Pennsylvania Denies In Part And Grants In Part Motion To Dismiss Stock Drop Suit, Finding Plaintiffs Adequately Pled Global Pharmaceutical Company Misrepresented The Safety Of Its Opioid
On December 10, 2018, Judge Timothy J. Savage of the United States District Court for the Eastern District of Pennsylvania denied in large part defendants’ motion to dismiss a putative class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Sections 11 and 20 of the Securities Act of 1933 (the “Securities Act”). SEB Inv. Mgmt. AB v. Endo Int’l, PLC, No. 17-cv-03711 (E.D. Pa. Dec. 10, 2018). The Court held that plaintiffs adequately pled that the corporate defendant, a global pharmaceutical company (the “Company”), and five of the ten officers against whom plaintiffs asserted Exchange Act claims (collectively, the “Exchange Act Defendants”), misrepresented and omitted material facts regarding the abuse-deterrent properties of the opioid pills manufactured by the Company, such that plaintiffs could maintain an action under Section 10(b). Furthermore, the Court concluded that plaintiffs also adequately alleged Securities Act claims against the Company and nine of its officers (the “Securities Act Defendants”) on largely similar grounds.
Southern District Of New York Dismisses Putative Securities Class Action Against Electronics Manufacturer, Finding That The Alleged Misstatements Are Protected By The PSLRA’s Safe Harbor
On October 10, 2018, Judge Paul G. Gardephe of the United States District Court for the Southern District of New York issued a memorandum opinion and order setting forth the reasoning for his September 30, 2018, dismissal of a putative securities class action against SuperCom Inc. (the “Company”), an Israeli manufacturer of electronic identification and location tracking products, and certain of its officers and directors. In re SuperCom Inc. Sec. Litig., No. 20-cv-9650 (S.D.N.Y. Oct. 10, 2018). Plaintiffs—purchasers of the Company’s common stock during a ten-month putative class period—alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) as a result of defendants allegedly making materially false and misleading statements regarding the Company’s revenue and earnings projections for 2015, which plaintiffs allege led to a 40% decline in the Company’s stock price when the Company subsequently announced lower-than-expected financial results. The Court disagreed, finding that the alleged misstatements are protected by the Private Securities Litigation Reform Act of 1995 ( “PSLRA”) safe harbor because plaintiffs either failed to adequately allege material misstatements or failed to adequately allege the requisite scienter necessary to support their claims.
Exchange Act Claim Survives Because Sarbanes-Oxley’s Two Year Statute Of Limitations Extended The Time For Plaintiffs To Initiate Section 18 Claim
On September 14, 2018, United States District Court Judge Michael Shipp of the District of New Jersey declined to dismiss as untimely plaintiffs’ claim against a major pharmaceutical company (the “Company”) and certain of its executives under Section 18 of the Securities Exchange Act of 1934. Pentwater Equity Opportunities Master Fund Ltd v. Valeant Pharmaceuticals International, Inc., No. 1707552 (D.N.J. Sep’t 14, 2018). In denying defendants’ motion to dismiss, the Court deepened a split among courts over whether the Sarbanes-Oxley Act of 2002 (“SOX”) extends the time to file a Section 18 claim to two years of when the violation is discovered.
Third Circuit Affirms Dismissal Of Securities Fraud Class Action For Failure To Plead Scienter In Fourth Amended Complaint
On September 20, 2018, the United States Court of Appeals for the Third Circuit affirmed dismissal of a putative securities fraud class action brought against Hertz Global Holdings Inc. (the “Company”) and several of its executives for failure to plead a strong inference of scienter. In Re Hertz Global Holdings Inc., No. 17-2200 (3d Cir. Sep’t 20, 2018). Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 by making materially false and misleading statements concerning the Company’s financial results, internal controls, and future earnings projections. The panel found that plaintiffs’ allegations more plausibly suggested defendants were “just bad leaders,” confirming that claims of mismanagement cannot be converted into a claim of securities fraud, and that the complaint failed to allege factual allegations sufficient to give rise to a strong inference of scienter.
Northern District Of California Dismisses Securities Class Action Against Electric Car Manufacturer, Finding Production Projections Were Forward-Looking Statements
On August 24, 2018, Judge Charles Breyer of the United States District Court for the Northern District of California dismissed with leave to amend a putative class action against an electric car manufacturer (the “Company”), its Chief Executive Officer, and its Chief Financial Officer for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. Wochos v. Tesla, Inc., et al., No. 17-cv-05828 (N.D. Cal. Aug. 24, 2018). Plaintiffs alleged that defendants made false and misleading statements regarding production projections for the Company’s Model 3 that it failed to meet. Stating that “[f]ederal securities laws do not punish companies for failing to achieve targets,” the Court held that the challenged statements were protected by the safe harbor provision of the Private Security Litigation Reform Act of 1995 (“PSLRA”) because they were forward-looking and accompanied by meaningful cautionary language.
Southern District Of New York Dismisses Securities Class Action Against Brokerage Firm For Failure To Adequately Allege Material Misrepresentations And Scienter
On August 10, 2018, Judge Kimba M. Wood of the United States District Court for the Southern District of New York dismissed a putative securities class action against foreign exchange trading company FXCM Inc. (“FXCM” or the “Company”) and its CEO. Ret. Bd. of the Policemen’s Annuity and Benefit Fund of Chicago v. FXCM, No. 15-cv-03599 (S.D.N.Y. Aug. 10, 2018). Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 by making material misstatements and omissions concerning certain risks associated with the Company’s business model. The Court held that the alleged misrepresentations were inactionable “puffery,” too vague to be actionable, or were not misleading because the alleged risks were adequately disclosed when the Company’s disclosures were viewed as a whole. The Court also held that plaintiff had failed to allege a strong inference of scienter.
Second Circuit Underscores That Contractual Obligations Reached In The United States Can Establish That A Transaction Is “Domestic” Under The Securities Exchange Act Of 1934
06/26/2018On Tuesday, June 19, 2018, the United States Court of Appeals for the Second Circuit held that allegations that parties had reached an agreement within the United States for the sale of foreign securities established a “domestic transaction” sufficient to bring related fraud claims within the scope of U.S. securities laws under Morrison v. National Australia Bank Ltd.CATEGORY: Exchange Act