Eastern District Of Pennsylvania Certifies Class Of Investors In Suit Against Natural Gas Company After Finding That Presumption Of Reliance Was Not Rebutted
On August 23, 2022, Judge Gerald Austin McHugh, Jr. of the United States District Court for the Eastern District of Pennsylvania granted class certification in a securities fraud class action against an energy company and its subsidiary (the “Company”) and its executives under the Securities Exchange Act of 1934. The suit alleged that defendants made misstatements and omissions regarding the status of the construction of three natural gas pipelines and that the Company’s stock price dropped following certain corrective disclosures. The Court certified the class after holding that plaintiffs met the requirements of Rule 23(a) as well as the predominance and superiority requirements of Rule 23(b)(3).
California District Court Grants Motion To Dismiss With Prejudice Putative Securities Class Action Against Healthcare Company, Finding That Plaintiffs Failed To Allege False Statements Or Misleading Omissions In The Company’s IPO Offering Documents
On June 9, 2022, Judge David O. Carter of the United States District Court for the Central District of California granted a motion to dismiss a putative class action lawsuit alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”) and Rule 10b-5 thereunder, and Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) against a healthcare company (the “Company”), its directors, and the underwriters of the Company’s initial public offering. R. Brian Terenzini v. GoodRx Holdings, Inc. et al., No. 2:20-cv-11444, (C.D. Cal. June 9, 2022). Plaintiffs alleged in their amended complaint that at the time of the Company’s IPO it failed to disclose in its Registration Statement and subsequent investor communications the significant risk of competition from a large online retailer. The Court held that—as with the original complaint—plaintiffs failed to allege actionable misstatements or omissions as well as scienter and granted defendants’ motion to dismiss with prejudice.
Northern District Of California Grants In Part Summary Judgment In Securities Fraud Action Against Electric Carmaker Over Twitter Posts Contemplating Go-Private Deal
On May 10, 2022, Judge Edward Chen of the United States District Court for the District of Northern California unsealed an April 1, 2022 order granting in part a motion for summary judgment in a securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a designer and manufacturer of electric cars (the “Company”), its co-founder and CEO (the “Individual Defendant”), and its directors. In re Tesla, Inc. Sec. Litig.
, No. 18-CV-04865-EMC, 2022 WL 1497559 (N.D. Cal. Apr. 1, 2022). Plaintiff claims that the Individual Defendant inflated the Company’s stock price by posting false and misleading statements on Twitter regarding a potential take-private deal. The case proceeded to summary judgment following the Court’s prior denial of the Company’s motion to dismiss in April 2020, which we covered here
. Nearly two years later, the Court granted plaintiff’s motion for summary judgment as to the Individual Defendant’s statements about securing funding and investor support for the potential take-private deal because he was aware at the time of the statements that the take-private deal remained subject to a number of contingencies.
New York District Court Denies Motion To Dismiss Putative Securities Class Action Against Investment Company, Finding Plaintiffs Sufficiently Alleged Misleading Statements And Omissions In The Company’s Offering Documents
On May 4, 2022, Judge Victor Marrero of the United States District Court for the Southern District of New York denied a motion to dismiss a putative class action alleging, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”) and Rule 10b-5 thereunder against an investment company (the “Company”), its related entities, and its president and co-founder. Michael Tecku et al. v. YieldStreet Inc. et al., No. 1:20-cv-07327 (S.D.N.Y May 4, 2022). Plaintiffs alleged that the Company “misrepresented material facts about the stability and attractiveness of their investment products in its offering documents” by making misleading statements or omissions in private placement memoranda (“PPMs”) and series notes supplements (“SNSs”). The Court held that, accepting plaintiffs’ allegations as true, plaintiffs sufficiently alleged securities fraud violations for certain alleged misstatements and omissions.
Southern District Of Ohio Declines To Dismiss Putative Class Action Against Energy Company Regarding Alleged Bribery Scheme
On March 7, 2022, Judge Algenon L. Marbley of the Southern District of Ohio largely denied a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 (“Exchange Act”) and the Securities Act of 1933 (“Securities Act”) against an energy company, certain of its executives and directors, and certain underwriters of its bond offerings. In re FirstEnergy Corp. Sec. Litig., No. 2:20-cv-3785 (S.D. Ohio Mar. 7, 2022). Plaintiffs alleged that the company engaged in an anti-competitive scheme that included bribing state officials in exchange for a government bailout of its nuclear power facilities. The lawsuit relates to the Ohio House Bill 6 scandal, in connection with which Ohio’s former Speaker of the House and others have been arrested on racketeering charges, political strategists and lobbyists have pleaded guilty to a racketeering conspiracy; the company fired certain executives for violating company policies and its code of conduct, and the company entered into a deferred prosecution agreement under which it paid a $230 million penalty and acknowledged having “conspired with public officials and other individuals and entities to pay millions of dollars to and for the benefit of public officials in exchange for specific official action” for the company’s benefit. The Court held that plaintiffs had sufficiently alleged the various elements of their claims and declined to dismiss any defendant from the case, although the Court dismissed certain claims with respect to certain individual defendants.
Ninth Circuit Reverses Denial Of Motion For Summary Judgment In Putative Securities Fraud Class Action, Finding The Affiliated Ute Presumption Of Reliance Did Not Apply Because Plaintiff’s Allegations Could Not Be Characterized Primarily As Claims Of Omission
On June 25, 2021, a divided panel of the United States Court of Appeals for the Ninth Circuit reversed a decision of the United States District Court for the Northern District of California denying summary judgment to defendants in a putative securities fraud class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder against an automobile manufacturer and its wholly owned subsidiary. In re Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, —F.3d—, 2021 WL 2621171 (9th Cir. 2021) (“In re Volkswagen”). Plaintiff alleged that, in connection with bonds issued through three private placements, defendants made omissions and affirmative misrepresentations related to the use of emissions “defeat devices” in their vehicles. Defendants moved for summary judgment on the reliance element of plaintiff’s claims, but the district court denied the motion, reasoning that plaintiff’s claims were based primarily on defendants’ alleged omissions rather than affirmative misstatements, and a presumption of reliance therefore applied. Considering the issue on interlocutory appeal, a divided panel of the Ninth Circuit reversed and remanded.
U.S. Supreme Court Confirms That The Generic Nature Of Alleged Misstatements In Federal Securities Fraud Claims Is Relevant To Rebut Basic Presumption Of Classwide Reliance At Class Certification Stage
On June 21, 2021, the United States Supreme Court, in a decision delivered by Justice Amy Coney Barrett, vacated and remanded a decision of the United States Court of Appeals for the Second Circuit upholding a certification of a shareholder class asserting securities fraud against a global financial institution (the “Company”) under the Securities Exchange Act of 1934, on the basis that there was “sufficient doubt” as to whether the Second Circuit properly considered the generic nature of the Company’s alleged misrepresentations in its price impact inquiry. Goldman Sachs Grp., Inc. et al. v. Arkansas Teacher Ret. Sys. et al., 594 U.S. ____ (2021). The Court held that, in the context of class certification in a case involving claims under Section 10(b) of the Exchange Act: (i) the generic nature of a misrepresentation is important evidence of price impact that courts should consider at the class certification stage, regardless of whether that evidence overlaps with materiality and any other merits issue, and (ii) defendants bear the burden of persuasion to prove a lack of price impact by a preponderance of the evidence in order to rebut the presumption of classwide reliance established under the Supreme Court’s decision in Basic Inc. v. Levinson.
Seventh Circuit Vacates Decision To Certify Class, Holding That District Court Must Consider Sufficiency Of Defendants’ Evidence To Rebut Fraud-On-The-Market Presumption Of Reliance, As Required Under Halliburton II
On July 16, 2020, the United States Court of Appeals for the Seventh Circuit unanimously vacated the Northern District of Illinois, Eastern Division’s decision to grant class certification to plaintiffs bringing securities fraud claims against a national insurance provider (the “Company”), holding that the district court decision to exclude certain evidence at the class certification stage was based in part on a legal error. Carpenters Pension Trust Fund, et al. v. Allstate Corp., et al., No. 19-1830 (7th Cir. July 16, 2020). The Court remanded to the district court for further proceedings, providing guidance as to what should be considered when applying Rule 23(b)(3)’s predominance requirement in the class certification process.
Southern District Of New York Dismisses Federal Securities Claims Against Asset Management Company For Failure To Adequately Allege Reliance Or Causation
On September 30, 2019, Judge Loretta A. Preska of the United States District Court for the Southern District of New York dismissed federal securities claims brought against a Japanese investment advisor and asset manager (the “Company”), its parent, and its former CEO. Alfandary, et al. v. Nikko Asset Management, et al., 17-cv-05137 (S.D.N.Y. Sept. 30, 2019). Plaintiffs, former senior executives of the Company or one of its subsidiaries, alleged that defendants engaged in a scheme to devalue plaintiffs’ stock acquisition rights (“SARs”) and to force them to sell their SARs back to the Company at the artificially deflated price, in violation of section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. The Court dismissed the Exchange Act claims finding that most plaintiffs failed to sufficiently allege a sale, and that all plaintiffs failed to allege reliance or loss causation.
District Of Massachusetts Holds That Plaintiff Who Purchased Stock After Corrective Disclosure Lacks Standing To Pursue Putative Securities Class Action
On September 23, 2019, Judge Denise J. Casper of the United States District Court for the District of Massachusetts denied class certification in a securities fraud action brought against a biopharmaceutical company (the “Company”) and several of its current and former officers and directors, and granted defendants’ motion for judgment on the pleadings in connection with plaintiff’s individual claim. Karth v. Keryx Biopharmaceuticals, Inc., C.A. No. 16-11745-DJC (D. Mass. Sept. 23, 2019). Plaintiff alleged that the Company misled investors about the number of entities that manufactured its FDA-approved drug and that its stock price declined when it revealed that it only had a single manufacturer, which was experiencing issues that affected the drug’s availability for sale. The Court declined to certify the putative class, finding that plaintiff was an inadequate representative because the timing of his stock purchases made his claims atypical from those of the proposed class. As to his individual claim, the Court granted defendants’ judgment on the pleadings, finding that plaintiff could not plead loss causation because the Company’s disclosures about the single manufacturer pre-dated the alleged stock drop by six months, and finding that plaintiff could not plead reliance because plaintiff purchased his shares two months after the curative disclosures.
District Of Connecticut Certifies Class In Cryptocurrency Mining Suit, Holding That Proposed Class Could Establish Reliance Based On Common Proof
On June 21, 2019, Judge Michael P. Shea of the United States District Court for the District of Connecticut granted plaintiffs’ motion to certify a class of investors in an action alleging that two cryptocurrency companies falsely represented that they were using investors’ money to mine for cryptocurrency when, in fact, they were engaged in a Ponzi scheme. Plaintiffs asserted claims against the companies and their owners under Section 10(b) of the Securities Exchange Act of 1934, Connecticut securities law, and for common law fraud. Audet v. Fraser, No. 3:16-CV-0940 (MPS), 2019 WL 2562628 (D. Conn. June 21, 2019). The Court held that each of the requirements for class certification was satisfied and, in particular, that even though no presumption of reliance was available, reliance on misrepresentations could be established on a class-wide basis based on common proof.
Southern District Of Florida Dismisses Claims Against Individual Defendants Related To Initial Coin Offering For Failure To Adequately Allege “Seller” Status Or Reliance
On May 13, 2019, Judge Robert N. Scola, Jr., of the United States District Court for the Southern District of Florida dismissed all claims asserted against four individual defendants under Sections 12(a)(1) of the Securities Act of 1933 (the “Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) in an action against the cryptocurrency company Centra Tech, Inc. and certain of its officers and celebrity promoters. Rensel v. Centra Tech, Inc., et al., No. 17-24500-Civ-Scola (S.D. Fla. May 13, 2019). Plaintiffs alleged that the company made a series of misrepresentations while marketing an initial coin offering, and that the individual defendants were responsible as “sellers,” because they encouraged the purchase of unregistered securities. Addressing the individual defendants’ motions to dismiss, the Court dismissed plaintiffs’ Securities Act claims for failure to adequately allege that the individual defendants were “sellers” within the meaning of the Securities Act and dismissed plaintiffs’ Exchange Act claims for failure to adequately allege reliance.
Second Circuit Affirms Dismissal Of Securities Fraud Claims With Prejudice For Failure To Plead Reliance
On October 26, 2018, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative securities class action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a financial services company, its broker-dealer (the “Company”), and one current and one former officer of the financial services company. Schwab v. E*TRADE Fin. Corp. et al, 1:18-cv-461 (2d Cir. Oct. 26, 2018). Plaintiff alleged that the Company failed to disclose that it was purportedly violating the duty of “best execution,” which requires broker-dealers to use “reasonable diligence” to obtain the most favorable price for a customer under “prevailing market conditions.” Earlier this year, the United States District Court for the Southern District of New York dismissed plaintiff’s third amended complaint with prejudice after finding that plaintiff had failed to adequately allege reliance, among other elements. The Second Circuit affirmed the judgment, reiterating that the Affiliated Ute presumption of reliance does not apply where the claim is primarily based on misrepresentations rather than on omissions.
Northern District Of California Finds Scienter And Individual Reliance Adequately Pleaded, But Stresses That Issues Respecting Class-Wide Reliance Remain To Be Considered
On September 7, 2018, Judge Charles Breyer of the United States District Court for the Northern District of California denied a motion to dismiss a second amended putative class action complaint on behalf of Volkswagen bondholders asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against Volkswagen and certain of its former executives alleging that defendants failed to disclose Volkswagen’s use of “defeat device” software to mask emissions in the company’s diesel engines. In re Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation
, MDL No. 2672 CRB (JSC) (N.D. Cal. Sept. 7, 2018). In its previous July 19, 2017
and March 2, 2018
orders, as discussed in our prior posts, the Court had first dismissed certain claims for failure to adequately plead scienter and then, reconsidering its prior holding that plaintiff was entitled to a presumption of reliance under Affiliated Ute
, dismissed plaintiff’s first amended complaint in its entirety for failure to plead reliance. In considering the second amended complaint, the Court held that scienter and individual, direct reliance were adequately alleged, but raised questions about plaintiff’s ability to prove class-wide reliance.
Northern District Of California Applies Second Circuit’s Waggoner Decision, Dismissing “Defeat Device” Claims Against Volkswagen For Failure To Plead Reliance Or A Plausible Basis For A Presumption Of Reliance
On March 2, 2018, Judge Charles R. Breyer of the United States District Court for the Northern District of California granted defendants’ request for reconsideration of a motion to dismiss a putative class action brought against Volkswagen Aktiengesellschaf (“VW AG”), Volkswagen Group of America, Inc. (“VWGoA”), Volkswagen Group of America Finance, LLC (“VWGoAF”), and former executives of VW AG and VWGoA. In re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation
, MDL No. 2672 CRB (JSC) (N.D. Cal. Mar. 2, 2018). Plaintiff had alleged that defendants failed to disclose Volkswagen’s use of “defeat device” software to mask emissions in the company’s diesel engines, in violation of Section 10(b) of the Securities Exchange Act of 1934. In its previous July 19, 2017 order
, the Court dismissed certain claims but found that plaintiff could rely on a presumption of reliance under Affiliated Ute Citizens of Utah v. United States
, 406 U.S. 128 (1972), because plaintiff primarily alleged omissions as opposed to misstatements. Defendants asked the Court to reconsider that ruling in light of the Second Circuit’s November 2017 decision
in Waggoner v. Barclays PLC
, 875 F.3d 79 (2d Cir. Nov. 6, 2017)—which held that the Affiliated Ute
presumption does not apply when the only omission alleged is the omission of the truth that an affirmative misstatement misrepresented. The Court did so, agreed with Waggoner
, and dismissed plaintiff’s remaining claims for failure to adequately plead reliance.
Fifth Circuit Affirms Dismissal With Prejudice Of Putative Class Action, Holding That General Allegations Against A Broad Group Of Related But Distinct Corporate Entities Does Not Permit Aggregating Alleged Knowledge When Evaluating The Sufficiency Of Scienter Allegations
On February 26, 2018, the United States Court of Appeals for the Fifth Circuit affirmed in a per curiam
unpublished decision the dismissal of a putative securities class action against UBS AG and certain affiliated entities. Giancarlo, et al. v. UBS Financial Services Inc., et al
., No. 16-20663 (5th Cir. Feb. 26, 2018). Plaintiffs—former clients of a defendant UBS affiliate who invested in former energy giant Enron using the UBS affiliate as their broker—alleged that defendants violated Section 10(b) of the Securities Exchange Act by failing to disclose information purportedly revealing problems with Enron’s accounting, leading to alleged losses when Enron’s precarious financial position was uncovered in November 2001. The United States District Court for the Southern District of Texas dismissed plaintiffs’ claims, finding that plaintiffs failed to plead facts demonstrating that defendants’ separate corporate status should be disregarded, and thus had failed to adequately plead their “single, fully integrated entity” theory of liability. The District Court further found that plaintiffs had failed to identify specific brokers or allege facts demonstrating that each broker had an intent to deceive, manipulate, or defraud. The Fifth Circuit agreed, holding that plaintiffs had failed to meet the heightened specificity requirements for pleading securities fraud under Federal Rule of Civil Procedure 9(b), noting that plaintiffs had not adequately alleged that defendants had knowledge of Enron’s practices, nor a duty to disclose such information to plaintiffs.
Southern District Of New York Dismisses With Prejudice Securities Fraud Action Against Chinese Technology Company, Finding Statement That Company Was “Worth Billions” Nonactionable Puffery
On February 27, 2018, Judge Naomi Reice Buchwald of the United States District Court for the Southern District of New York dismissed with prejudice a putative securities fraud action brought against Chinese mobile internet service provider NQ Mobile, Inc. (“NQ”) and its CEO and Vice President. Finocchiaro, et al v. NQ Mobile Inc., et al.,
No. 1:15-cv-06385 (S.D.N.Y. Feb. 27, 2018). Plaintiffs—shareholders of NQ—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act by making affirmative misstatements about NQ’s value and failing to disclose to investors certain material facts relating to NQ’s corporate acquisition strategy, allegedly causing plaintiffs to suffer losses when the truth was revealed and NQ’s stock dropped. The Court held that the alleged affirmative misrepresentation was mere puffery which plaintiffs could not have reasonably relied upon and that the alleged material omissions were in fact properly disclosed. Accordingly, the Court dismissed the complaint with prejudice.
District Of Minnesota Certifies Securities Fraud Class Action But Narrows The End Of Putative Class Period To The Date Of The Initial Corrective Disclosure
On January 30, 2018, Judge John R. Tunheim of the United States District Court for the District of Minnesota granted class certification in a consolidated securities fraud class action against Medtronic and certain of its officers and employees. West Virginia Pipe Trades Health & Welfare Fund v. Medtronic, Inc
., et al.
, No. 13-cv-01686-JRT-FLN (D. Minn. Jan. 30, 2018). Plaintiffs—institutional investors who purchased Medtronic stock during the proposed class period—allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by manipulating early clinical studies of INFUSE, an alternative to replacement bone-tissue graft, by knowingly concealing adverse side effects observed in clinical trials, and by failing to sufficiently disclose that it paid physician authors a total of $210 million to publish positive articles about INFUSE in medical journals. Plaintiffs allege that Medtronic’s deception artificially inflated the company’s stock price, causing a large stock drop in August 2011, when the truth was revealed through a corrective disclosure. Plaintiffs sought to certify a class of all purchasers of Medtronic stock between September 8, 2010 and August 3, 2011. The Court certified the class, but shortened the class period end date to June 3, 2011, which is the date of the initial corrective disclosure.
Southern District Of New York Again Dismisses—This Time With Prejudice—Securities Fraud Claims For Failure To Plead Reliance And Scienter
On January 20, 2018, Judge John Koeltl of the United States District Court for the Southern District of New York dismissed a putative class action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder filed against E*TRADE Securities LLC (“E*TRADE”), E*TRADE Financial Corporation (“E*TRADE Financial”), and one current and one former officer of E*TRADE Financial. Schwab v. E*TRADE Fin. Corp.
, --F. Supp. 3d --, 2018 WL 502787 (S.D.N.Y. 2018). Plaintiff alleged that E*TRADE falsely represented that it would execute clients’ orders consistent with its duty of “best execution”—which requires it to use “reasonable diligence” to obtain the most favorable price for a customer under “prevailing market conditions”—because E*TRADE allegedly executed orders in consideration of only two factors—its order-handling agreements with venues and the maximization of payments for order flow. In prior decisions, the Court dismissed
common law claims as precluded by the Securities Litigation Uniform Standards Act (“SLUSA”), and dismissed without prejudice
the second amended complaint for failure to adequately allege reliance or scienter. Addressing plaintiff’s third amended complaint, the Court again determined that plaintiff had failed to adequately plead reliance or scienter, and dismissed the action with prejudice.
Southern District Of New York Dismisses Securities Fraud Claims For Failure To Plead Reliance And Scienter
On July 10, 2017, Judge John G. Koeltl of the United States District Court for the Southern District of New York dismissed a putative securities fraud class action against E*TRADE Securities LLC (“E*TRADE”), E*TRADE Financial Corporation (“E*TRADE Financial), and one current and one former officer of E*TRADE Financial. Schwab v. E*TRADE Fin. Corp.
, No. 16-cv-05891 (S.D.N.Y. July 10, 2017). Plaintiff alleged that E*TRADE misled its clients by falsely representing that it would execute orders consistent with its duty of “best execution,” which requires it to use “reasonable diligence” to obtain the most favorable price for a customer under “prevailing market conditions.” Plaintiff brought claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, as well as control person claims under Section 20(a) of the Exchange Act. The Court granted defendants’ motion to dismiss, holding that plaintiff failed to adequately plead reliance or scienter, and also failed to plead culpable participation sufficient to state a control person claim.
Southern District Of Ohio Holds Defendants Cannot Challenge The Manner In Which Shares Were Purchased At The Class Certification Stage And Endorses Price Maintenance
On March 17, 2017, Judge Michael Watson of the United States District Court for the Southern District of Ohio certified a securities class action brought against Big Lots, Inc. (“Big Lots”) and various current and former officers for alleged misrepresentations in SEC filings in violation of the antifraud provisions of the Securities Exchange Act of 1934 (the “Exchange Act”). Willis v. Big Lots, Inc.
, No. 2:12-cv-00604 (S.D. Ohio Mar. 17, 2017). Plaintiffs alleged misleading statements concerning the company’s performance and ability to meet various sales targets. In holding that the requirements for class certification were satisfied, the court held notably that (i) being a value investor—including using investment advisors that made their own assessments of Big Lots’ intrinsic value—is insufficient, particularly at the class certification stage, to show that the lead plaintiffs were not typical representatives of the class; and (ii) where the stock price did not rise as the result of alleged misrepresentations, defendants still bore the burden of establishing a lack of price impact under the price maintenance theory.
Second Circuit Affirms Judgment Rejecting Securities Fraud Claims Because Plaintiffs Would Have Bought Securities Even Knowing Of Alleged Fraud
On September 27, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the judgment of the Southern District of New York, after a bench trial, finding that Vivendi Universal, S.A. (“Vivendi”) rebutted the fraud-on-the-market presumption of reliance, thereby defeating a non-class, individual group of plaintiffs’ claims under Section 10(b) of the Securities Exchange Act of 1934. GAMCO Inv’rs, Inc. v. Vivendi Universal, S.A., —F.3d—, 2016 WL 5389281 (2d Cir. Sept. 27, 2016). The Court affirmed the district court’s determination that plaintiffs—a number of “value funds” controlled by GAMCO Investors, Inc. (“GAMCO”)—did not rely on Vivendi’s market price, and would have purchased the securities even had they known of Vivendi’s alleged misstatements respecting its liquidity risk. While acknowledging that it would seem unlikely that an investor, “aware of fraud,” would purchase a security, the Court repeatedly emphasized that sufficient evidence in the trial record supported the district court’s findings.
New York Appellate Division Sustains Fraud Claims Against RMBS Issuers and Underwriters
On August 11, 2016, the New York Appellate Division, First Department, affirmed the New York Supreme Court’s denial of a motion to dismiss fraud claims asserted against sponsors and underwriters of twenty-three residential mortgage backed securities (“RMBS”). IKB International, S.A. v. Morgan Stanley
, 2016 WL 4217814 (1st
Dep’t Aug. 11, 2016). Defendants argued that the plaintiff had not adequately alleged its justifiable reliance on any alleged misrepresentation and that, when acting solely as underwriters of certain of the challenged transactions, they made no actionable misrepresentations. The Court held that the plaintiff had adequately pleaded justifiable reliance on the purported misstatements and that the underwriters’ participation in the RMBS at issue, as pleaded, was sufficient to withstand a motion to dismiss.