New York State Court Dismisses Putative Securities Class Action Lawsuit Against Canadian Cannabis Producer For Failure To Plead Contemporaneous Misleading Statements
Northern District Of Illinois Denies Motion To Dismiss A Putative Securities Class Action Against Electric Company For Failure To Disclose Long-Running Bribery Scheme
On June 3, 2021, Justice Andrew Borrok of the Supreme Court of the State of New York, Commercial Division, granted a motion to dismiss a putative securities class action against a Canadian cannabis company (the “Company”), certain of its officers and directors, and its underwriters, alleging violations of Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”). Leung v. Hexo Corp., et al., No. 20-cv-150444 (N.Y. Sup. Ct. Jun. 3, 2021). Plaintiff alleged that the Company’s offering documents misled investors regarding one of the Company’s key supply agreements. In dismissing the complaint, the Court held that plaintiff failed to adequately allege contemporaneous facts indicating that the Company knew at the time of the offering that issues would arise with respect to that agreement. In so holding, the Court cited a March 9, 2021 decision by Judge Naomi Reice Buchwald of the Southern District of New York, in which Judge Buchwald granted a motion to dismiss a first-filed action in federal court asserting similar claims against the Company, certain of its officers and directors, and its underwriters, relying on the same allegations.
On April 21, 2021, Judge Virginia M. Kendall of the United States District Court for the Northern District of Illinois denied a motion to dismiss a putative securities class action against a large Illinois-based electric company (the “Company) for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Items 105 and 303 of Regulation S-K. Flynn v. Exelon Corp., No. 19-C-8209 (N.D. Ill. April 21, 2021). Plaintiff alleged that the Company made false and misleading statements and omissions about an eight-year scheme to bribe Illinois state lawmakers, which, when finally disclosed to the market, caused substantial losses to investors. The Court denied the motion to dismiss with respect to most claims. Significantly, although the Court recognized that the Seventh Circuit has not held that Items 105 and 303 impose a general duty to disclose regulatory non-compliance, the Court nevertheless found that the Company violated Items 105 and 303 because it knew of and attempted to conceal the bribery scheme, all while making public statements that it was in compliance with its internal anti-bribery guidelines.