Federal Court Denies Motion To Dismiss Section 20A Insider Trading Claims, Finding Plaintiffs Sufficiently Pleaded Scienter Where Allegations Were “Equally Compelling” As The Opposing Inference
On July 1, 2019, Judge Michael A. Shipp of the United States District Court for the District of New Jersey denied a motion to dismiss a complaint alleging insider trading in violation of Section 20A of the Securities Exchange Act of 1934. In re Valeant Pharma. Int’l Inc. Sec. Litig., 15-7685 (MAS) (LHG) (D.N.J. July 1, 2019). The complaint asserts the Section 20A claims against a board member of a large pharmaceutical corporation (the “Company”) and an investment advisory firm and affiliates co-founded by that board member that traded in the Company’s stock. The Court, which had already considered and denied a motion to dismiss the Section 10(b) and Rule 10b-5 claims in a prior ruling, concluded that the complaint adequately alleged Section 20A claims and denied the motion to dismiss.
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.