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  • Northern District Of California Grants In Part And Denies In Part Motion To Dismiss A Putative Securities Fraud Class Action Against Rideshare Company
     
    09/15/2020

    On September 8, 2020, Judge Haywood S. Gilliam, Jr. of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative securities fraud class action against a ridesharing company (the “Company”) and certain of its directors under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”). In re Lyft Inc. Securities Litigation, No. 19 Civ. 2690 (HSG), 2020 WL 5366325 (N.D. Cal. Sept. 8, 2020).  Plaintiff alleged that the Company’s prospectus and registration statement (the “Registration Statement”) contained numerous false or misleading statements and omissions, including those concerning reported sexual assaults by the Company’s drivers and defects with bicycles that were part of the Company’s bikeshare fleet.  Although the Court found that certain statements and omissions regarding rider safety were actionable, the Court dismissed plaintiff’s remaining claims for failure to allege falsity or because the statements constituted non-actionable puffery.
     
  • First Circuit Affirms The Dismissal Of A Putative Securities Fraud Class Action Against Medical Robotics Company In Connection With The FDA’s Issuance Of A Warning Letter
     
    09/01/2020

    On August 25, 2020, the United States Court of Appeals for the First Circuit affirmed the dismissal of a putative securities fraud class action asserting violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) as well as Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against a medical robotics company (the “Company”) as well as certain of its officers.  Yan v. ReWalk Robotics Ltd., et al., No. 19-1614, 2020 WL 5014858 (1st Cir. Aug. 25, 2020).  Plaintiffs alleged that the Company made false or misleading statements and omissions in its IPO registration statement (the “Registration Statement”) and subsequent quarterly and annual disclosures concerning its dealings with the Food and Drug Administration (the “FDA”) regarding one of the Company’s devices.  The First Circuit affirmed the district court’s dismissal of the Securities Act claims, finding that plaintiffs failed to allege a material misstatement or omission.  Although it disagreed with the district court’s reasoning in dismissing the Exchange Act claims for lack of standing, the First Circuit nevertheless found that the Exchange Act claims were properly dismissed because plaintiffs failed to sufficiently allege a material misstatement or scienter.
     
  • Delaware District Court Grants Class Certification With Modifications In Suit Against Student Loan Processor
     
    09/01/2020

    On August 25, 2020, U.S. District Judge Maryellen Noreika certified two classes of investors bringing claims against a student loan servicing company (the “Company”), certain of its executives, and the underwriters of two of the Company’s debt offerings.  Lord Abbett Affiliated Fund Inc., et al. v. Navient Corp., et al., No. 1:16-cv-00112 (D. Del. Aug. 25, 2020).  Plaintiffs asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“the Exchange Act”) and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“the Securities Act”) alleging that defendants inflated the price of the Company’s securities by concealing problems in its loan servicing practices and other risks.  The Court granted plaintiffs’ motion for class certification in part, certifying one class of investors with alleged claims under the Securities Act and a second narrowed class with alleged claims under the Exchange Act.
     
  • Northern District Of California Dismisses Putative Class Action Against Large IT Services Provider
     
    08/04/2020

    On July 27, 2020, United States District Judge Beth Labson Freeman of the United States District Court for the Northern District of California dismissed, with leave to amend, a putative class action asserting violations of Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) against a large IT services provider (the “Company”), certain of its officers, and its largest shareholder.  Costanzo v. DXC Tech. Co., No. 19-cv-05794-BLF, 2020 WL 4284838 (N.D. Cal. July 27, 2020).  Plaintiffs alleged that the Company’s prospectus and registration statement (the “Registration Statement”), issued in connection with the merger that created the Company, mislead investors about the true scale of, and the risks associated with, the Company’s plan to reduce its workforce costs.  The Court granted defendants’ motion to dismiss because plaintiffs failed to allege that the statements in the Company’s Registration Statement were false and because the alleged misstatements were protected by the Private Securities Litigation Reform Act’s (“PSLRA”) safe harbor.
     
    CATEGORIES: FalsityPSLRASecurities Act
  • California Appellate Court Holds Secondary Market Purchasers of ETFs Lack Standing To Bring Securities Act Claims
     
    06/01/2020

    On January 23, 2020, the Court of Appeal of the First Appellate District of California affirmed a lower court’s judgment holding that investors lacked standing to pursue claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 against an open-end management investment company (the “Company”), its investment advisor, the investment advisor’s parent company, and certain members of the board of trustees of the Company.  Jensen v. iShares Tr., 44 Cal. App. 5th 618 (Ct. App. 2020), review denied (May 27, 2020).  Plaintiffs, who purchased shares of exchanged-traded funds (“ETFs”) on the secondary market, claimed that the Company failed to adequately disclose the risks associated with “flash crashes” that were known to occur in the ETF market.  The Court affirmed the lower court’s dismissal, holding that plaintiffs lacked standing under Section 11 because they could not satisfy the tracing requirement and that plaintiffs lacked standing under Section 12(a)(2) because they failed to allege direct contract with defendants.
     
  • Northern District Of California Denies In Part Motion To Dismiss Securities Act Claims Against Software Company, Finding That Plaintiff Met Section 11 “Tracing” Requirements In Connection With Direct Listing Of Preexisting Shares
     
    04/28/2020

    On April 21, 2020, Judge Susan Illston of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative class action lawsuit asserting claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) against a software company (the “Company”), certain of its executives and directors, and three venture capital firms (the “VC Defendants”) that held a significant percentage of the Company’s voting power.  Fiyyaz Pirani v. Slack Technologies, Inc., et. al., No. 19-cv-05857-SI (N.D. Cal. Apr. 21, 2020).  Plaintiff alleged that defendants were liable for materially misleading statements and omissions concerning the Company’s service outages, competition, scalability, and growth strategy in offering materials in connection with the Company’s direct listing of preexisting shares to the public.  The Court granted in part and denied in part defendants’ motion to dismiss, and granted plaintiff leave to amend to cure the amended complaint’s deficiencies.
     
  • District Of Connecticut Dismisses Securities Class Action Against A Consumer Financial Services Company, Certain Of Its Officers And Directors And Its Underwriters, Holding That Plaintiffs Failed To Adequately Allege Any Material Misrepresentations
     
    04/07/2020

    On March 31, 2020, Judge Victor A. Bolden of the District of Connecticut dismissed a putative securities class action against a provider of private label credit cards (the “Company”), certain of its officers and directors, and its underwriters in connection with a notes offering.  In re Synchrony Financial Sec. Litig., No. 3:18-cv-1818 (VAB) (D. Conn. Mar. 31, 2020).  Plaintiffs alleged violations of Section 11 of the Securities Act of 1933 (the “Securities Act”) by all defendants, as well as Section 15 of the Securities Act against the individual defendants.  Plaintiffs also alleged violations of Sections 10(b), 20A, and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”) by the Company and certain of the individual defendants.  The Court granted defendants’ motion to dismiss the Amended Complaint in its entirety with prejudice.
     
  • Northern District Of California Grants Motion To Dismiss Securities Fraud Claims Against Software Company, Finding That Plaintiffs Did Not Adequately Allege Falsity Or Scienter With Respect To Alleged Material Omissions
     
    03/17/2020

    On March 9, 2020, Judge William H. Orrick of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against a software company (the “Company”) and two of its executive officers.  Ryan Scheller, et. al. v. Nutanix, Inc., et. al., No. 19-cv-01651-WHO (N.D. Cal. Mar. 9, 2020).  Plaintiffs alleged—based primarily on statements allegedly made by seven confidential witnesses (the “CWs”)—that defendants made false and misleading statements and omissions concerning, among other things, the Company’s internal operations, business relationships, product quality, and sales performance.  The Court granted defendants’ motion to dismiss, finding that plaintiffs failed to allege that the Company’s public statements were false or misleading, and that plaintiffs failed to sufficiently allege scienter.
     
  • New York State Supreme Court Grants In Part Motion To Dismiss Securities Act Claims, Holding That Plaintiffs Did Not Adequately Allege Falsity With Respect To Alleged Omissions Regarding Changes To The Company’s Business Model, But Holding That An Issue Of Fact Exists Concerning Alleged Misstatements Regarding The Company’s Financial And Operational Data
     
    03/17/2020

    On March 9, 2020, Justice Andrew Borrok of the Supreme Court of the State of New York, New York County, Commercial Division, granted in part a motion to dismiss a putative securities class action asserting claims under Sections 11, 12 and 15 of the Securities Act of 1933 (the “Securities Act”) against a used car e-commerce company (the “Company”), certain of its executives and directors, and the underwriters for its initial public offering (“IPO”) of American Depository Shares (“ADSs”).  In re Uxin Limited Securities Litigation, No. 650427/2019 (N.Y. Sup. Ct. Mar. 9, 2020).  Plaintiffs alleged that the Company made materially false and misleading statements and omissions concerning changes to the Company’s business model and certain financial and operational data reported by the Company in connection with its IPO.  The Court granted in part and denied in part defendants’ motion to dismiss.
     
  • Northern District Of California Grants Motion To Dismiss Securities Fraud Claims Against Pharmaceutical Company, Finding That Plaintiffs Did Not Adequately Allege Falsity And Scienter With Respect To Alleged Material Omissions
     
    02/05/2020

    On January 27, 2020, Judge Richard G. Seeborg of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against a pharmaceutical company (the “Company”) and two of its executive officers.  Immanuel Lake, et al. v. Zogenix, Inc., et. al., No. 19-cv-01975-RS (N.D. Cal. Jan. 27, 2020).  Plaintiffs alleged that defendants made material omissions concerning the Company’s New Drug Application (“NDA”) it was submitting to the U.S. Food and Drug Administration (“FDA”) for a medication designed to treat seizures.  According to plaintiffs, the Company’s stock price fell approximately 20% when the alleged omission was revealed to the market through the FDA’s rejection of the NDA.  The Court granted defendants’ motion to dismiss, finding that plaintiffs failed to sufficiently allege a misstatement or omission of a material fact and scienter, but granted leave to amend.
     
  • Middle District Of Tennessee Pares Claims In Putative Class Action Against Healthcare Company And Its Previous Owner
     
    11/26/2019

    On November 19, 2019, Judge William M. Campbell of the United States District Court for the Middle District of Tennessee granted in part and denied in part motions to dismiss a putative class action under the Securities Act of 1933 and the Securities Exchange Act of 1934 against a healthcare company, certain of its officers and directors, and a private equity firm that previously owned the company.  Plaintiffs alleged that the company failed to disclose that allegedly improper business practices were responsible for its revenue growth.  In re Envision Healthcare Corp. Sec. Litig., No. 3:17-CV-01112, 2019 WL 6168254 (M.D. Tenn. Nov. 19, 2019).  The Court held that certain of the claims against the company and the individual defendants were adequately pleaded and others were not, but dismissed all claims against the private equity firm for failure to adequately allege scienter.
     
  • Connecticut State Court Grants Motion To Strike Securities Act Claims
     
    11/05/2019

    On October 24, 2019, Judge Charles T. Lee of the Connecticut Superior Court granted a motion to strike claims alleging violations of Sections 11, 12(a) and 15 of the Securities Act of 1933 (the “Securities Act”) in connection with an initial public offering brought against the issuer, certain of its officers, and the underwriters of the offering.  City of Livonia Retiree Health & Disability Benefits Plan v. Pitney Bowes Inc., No. X08 FST CV 18 6038160 S (Conn. Super. Ct. Oct. 24, 2019).  The Court had previously granted a protective order staying discovery pending the disposition of the motion to strike pursuant to the discovery stay provided in the Private Securities Litigation Reform Act, in one of the first state court decisions after the Supreme Court’s decision in Cyan Inc. v. Beaver Cty. Employees Ret. Fund, 138 S. Ct. 1061 (2018).  See State Court Stays Discovery Under the PSLRA During Pendency of Motion to Strike, Need to Know Litigation Newsletter (May 29, 2019), https://www.lit-sl.shearman.com/State-Court-Stays-Discovery-Under-The-PSLRA-During-Pendency.  In granting the motion to strike, the Court held that plaintiffs had failed to plead violations of the Securities Act because they did not identify any actionable misstatements or omissions from the relevant offering documents.
     
  • Northern District Of California Denies In Part Motion To Dismiss Securities Act Claims Against A Medical Technology Company, Finding That Plaintiff Adequately Alleged Material Misstatement
     
    10/29/2019

    On October 18, 2019, Judge Edward J. Davila of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative class action asserting claims under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) and Item 303 of Regulation S-K against a medical technology company (the “Company”) and certain of its executives and directors, venture capital firms, and underwriters.  In re Restoration Robotics, Inc. Securities Litigation, No. 18-cv-03712 (N.D. Cal. Oct. 18, 2019).  Plaintiff alleged that defendants made materially misleading statements and omissions concerning the Company’s marketing function, hair transplant technology, product sales and revenue in offering documents in connection with the Company’s initial public offering (“IPO”).  The Court granted in part and denied in part defendants’ motion to dismiss, and granted plaintiff leave to amend to cure the complaint’s deficiencies.
     
  • New York Supreme Court Dismisses Securities Act Of 1933 Claims, Holding That Plaintiffs’ Allegations Of Misleading Statements Are Inactionable Forward-Looking Statements Or Opinions Under Omnicare
     
    07/23/2019

    On July 11, 2019, Justice Andrew Borrok of the New York State Supreme Court, County of New York, Commercial Division, dismissed a putative securities class action against a Brazilian based online retailer (the “Company”), certain of its executives and directors, and its underwriters in connection with the Company’s initial public offering (“IPO”).  In re Netshoes Sec. Litig., Index No. 157435/2018 (Sup. Ct., N.Y. Cty., July 11, 2019).  Plaintiffs—purchasers of the Company’s stock—brought claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”), claiming that defendants made materially false and misleading statements in a registration statement filed with the SEC in connection with the IPO.  The Court dismissed the Securities Act claims without prejudice, finding that the allegations were inactionable opinions under the Supreme Court’s decision in Omnicare, Inc. v. Laborers Dist. Council Const. Indus., 135 S. Ct. 1318 (2015), or were inactionable because they were about past performance, were forward-looking, or were expressions of puffery.
  • Fifth Circuit Affirms Dismissal Of Putative Class Action, Holding That Grant Of Employee Stock Option Did Not Constitute A Sale, And That Plaintiffs Failed To Adequately Plead A Duty To Disclose
     
    06/03/2019

    On May 24, 2019, the United States Court of Appeals for the Fifth Circuit affirmed in a unanimous decision the dismissal of a putative securities class action against a major financial services company and several of its subsidiaries in relation to their alleged involvement in Enron’s “financial manipulation.”  Lampkin et al. v. UBS PaineWebber Inc. et al., No. 17-20608 (5th Cir. May 24, 2019).  Plaintiffs—(i) individual retail-brokerage customers of defendants, and (ii) former Enron employees who acquired Enron stock options through Enron’s stock option plan—alleged defendants violated Section 11 and Section 12 of the Securities Act of 1933 (the “Securities Act”) by acting as an underwriter and seller of Enron securities and were liable for materially false and misleading statements contained in Enron’s prospectuses and registration statements.  Plaintiffs also alleged defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder by failing to disclose their alleged knowledge of Enron’s alleged manipulation of its “public financial appearance.” 
  • Southern District Of New York Dismisses Claim That Underwriter Of Regulation A+ Offering Was A Seller Of Unregistered Securities, But Allows Securities Fraud Claim To Proceed Past The Pleading Stage
     
    04/23/2019

    On April 11, 2019, Judge Denise Cote of the United States District Court for the Southern District of New York granted in part and denied in part an underwriter’s motion to dismiss a putative class action lawsuit filed against a financial and technological services company (the “Company”), its executives, and the lead underwriter (“Underwriter”) of the Company’s Regulation A+ (“Reg A+”) offering in 2017 (the “Offering”).  In re Longfin Corp. Securities Class Action Litigation, 1:18-cv-02933 (DLC) (S.D.N.Y. Apr. 11, 2019).  Reg A+ was created to exempt certain categories of offerings from registration requirements and is an alternative to a traditional initial public offering.  Plaintiffs alleged that all defendants sold unregistered securities in violation of Section 12(a)(1) of the Securities Act of 1933 (“Securities Act”) in order to list on the NASDAQ, and committed fraud in violation of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and that certain of the individual defendants were liable under Section 20(a) of the Exchange Act and/or engaged in insider trading in violation of Section 20A of the Exchange Act.  The gravamen of plaintiffs’ claims is that the Company fraudulently issued more than 400,000 Class A shares to 24 individuals for $0 consideration in order to meet the NASDAQ’s listing requirement that the Company has issued 1,000,000 publicly held shares.  With respect to the Underwriter’s motion to dismiss, the Court dismissed the Securities Act claim, finding that it was not a “seller” of securities, but held that the Exchange Act claim could proceed because plaintiffs’ amended complaint adequately alleged, for the purpose of the motion to dismiss, the Underwriter’s knowledge and participation in a “scheme” under Rule 10b-5.
  • U.S. Chamber Of Commerce’s Institute Of Legal Reform Publishes Report On “Broken Securities Class Action System” And Proposes Reforms
     
    03/05/2019

    On February 25, 2019, the U.S. Chamber of Commerce’s Institute of Legal Reform (the “ILR”) published a report entitled “Containing the Contagion: Proposals to Reform the Broken Securities Class Action System” (the “Report”). The Report describes various trends and problems affecting the securities class action system, which have led to the filing of securities cases “reaching levels not seen since before the enactment of the Private Securities Litigation Reform Act (PSLRA) in 1995.” According to the Report, the three main drivers of the steep increase in securities litigation filings are: (1) cases alleging misstatements in connection with M&A activity; (2) so-called “event-driven litigation,” whereby securities class actions are triggered by unexpected adverse events, such as fires, explosions, data breaches, and the like; and (3) the U.S. Supreme Court’s decision in Cyan Inc. v. Beaver County Employees Retirement Fund (138 S. Ct. 1061 (2018)), which confirmed that state courts retain non-removable (with limited exceptions) concurrent jurisdiction over Securities Act of 1933 class actions. The Report also describes perceived abuses and the need to curb such practices. Finally, the Report urges action from different parts of the federal government including the SEC, federal courts, and Congress, calling on each to do its part in curbing non-meritorious lawsuits that can ultimately harm investors and the U.S. capital markets system.
    CATEGORY: Securities Act