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  • Southern District Of Florida Dismisses Putative Class Action Against Beverage Company For Failure To Adequately Allege Misstatements, Scienter And Loss Causation
     
    09/04/2019

    On August 29, 2019, Judge K. Michael Moore of the United States District Court for the Southern District of Florida dismissed a putative class action against National Beverage Corporation and certain of its officers asserting claims under Section 10(b) of the Securities Exchange Act of 1934.  Luczak v. National Beverage Corporation, et al., 18-cv-61631-KMM (S.D. Fla. Aug. 29, 2019).  Plaintiff alleged that defendants’ public statements contained misrepresentations regarding the company’s main product (a brand of sparkling water), the use of purportedly unique proprietary methods to drive growth, and sexual harassment allegations with respect to the company’s CEO.  The Court held that the alleged misrepresentations were inadequately pleaded with respect to either falsity, scienter or loss causation, and therefore dismissed the complaint in its entirety.
  • Northern District Of California Dismisses Putative Securities Class Action For The Second Time Against Generic Drug Maker For Inadequate Pleading, This Time Without Leave To Amend
     
    08/20/2019

    On August 12, 2019, Judge Haywood S. Gilliam, Jr. of the United States District Court for the Northern District of California dismissed without leave to amend a putative securities class action against a pharmaceutical company, and certain of its officers, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.  New York Hotel Trades Council & Hotel Assoc. of N.Y.C., Inc. Pension Fund v. Impax Laboratories Inc., No. 16 Civ. 6577 (N.D. Cal. Aug. 12, 2019).  As to alleged misrepresentations regarding alleged price fixing, the Court held that the announcement of a government investigation cannot, as a matter of law, amount to a “corrective disclosure” sufficient to allege loss causation.  As to other alleged misrepresentations regarding price erosion as to certain drugs, the Court held that plaintiff failed to plead a false statement, materiality, and/or scienter.    
  • District Of New Jersey Allows Class Action Based On Alleged Price-Fixing To Proceed Against Pharmaceutical Company
     
    08/13/2019

    On August 6, 2019, Judge Katherine S. Hayden of the United States District Court for the District of New Jersey denied a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 14(a) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14a-9 promulgated thereunder.  In re Allergan Generic Drug Pricing Sec. Litig., No. 16- CV-9449, 2019 WL 3562134 (D.N.J. Aug. 6, 2019).  Plaintiffs alleged that a pharmaceutical company and several of its executives participated in a price-fixing conspiracy that caused the prices of six generic drugs sold by the company to increase dramatically during the alleged class period—as ultimately revealed through a U.S. Department of Justice investigation—and that defendants made material misstatements and omissions regarding the alleged conspiracy.  The Court held that plaintiffs adequately pleaded their claims, including with respect to material misstatements, scienter and loss causation.
  • Eastern District Of New York Dismisses Putative Class Action Regarding Mutual Fund Disclosures For Failure To Adequately Allege Misstatements And Omissions
     
    07/02/2019

    On June 25, 2019, Judge Arthur Spatt of the United States District Court for the Eastern District of New York dismissed with prejudice a putative securities class action brought by investors in a mutual fund asserting violations of the Securities Act of 1933 (“Securities Act”) against the fund’s registrant, certain executives, investment advisor, and underwriter.  Emerson v. Mutual Fund Series Trust, No. 2:17-CV-02565 (ADS) (GRB), 2019 WL 2601664 (E.D.N.Y. June 25, 2019).  Plaintiffs alleged that the fund’s offering materials misrepresented that the fund was low-risk, when in fact it engaged in speculative investments that exposed the fund to substantial downside risk in rising markets.  Id. at *1.  The Court held that the complaint alleged “no actionable misstatements or omissions,” and dismissed the complaint with prejudice.  Id. at *15.
  • District of Colorado Dismisses Putative Class Action Against Restaurant Chain For Failure To Adequately Allege Misstatements Or Omissions
    04/09/2019

    On March 29, 2019, Judge Wiley Y. Daniel of the United States District Court for the District of Colorado dismissed with prejudice a putative securities class action asserting claims under the Securities Exchange Act of 1934 and Rule 10b-5 thereunder against the restaurant chain Chipotle and certain of its executives.  Nardy v. Chipotle Mexican Grill, Inc., No. 1:17-cv-1760 (WYD) (STV), slip op. (D. Colo. Mar. 29, 2019), ECF No. 64.  Plaintiffs alleged that, in the wake of foodborne illness outbreaks at Chipotle restaurants, defendants made misrepresentations and omissions regarding the company’s compliance with food safety regulations and its implementation and training of employees on food safety practices.  The Court held that plaintiffs’ various allegations failed to assert actionable misrepresentations, or in certain cases did not adequately allege scienter, or loss causation.
  • Southern District Of New York Holds Scienter Adequately Alleged In Putative Class Action Against Forex Services Company
     
    04/09/2019

    On March 28, 2019, Judge Ronnie Abrams of the United States District Court for the Southern District of New York largely denied a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  In re Global Brokerage, Inc., 17-cv-00916 (RA) (S.D.N.Y. Mar. 28, 2019).  Plaintiffs principally alleged that defendants, a foreign exchange trading and services company and certain of its executives, made misleading statements or omissions regarding (a) the company’s reliance on an agency-trading model and (b) the nature of payments the company received from another company, “Effex,” that had been spun-off from the defendant company.  The Court had dismissed plaintiffs’ prior amended complaint without prejudice, holding, inter alia, that plaintiffs had not adequately alleged scienter.  The Court held, however, that plaintiffs’ second amended complaint adequately alleged actionable misrepresentations and scienter as to the majority of claims and all but one individual defendant.
  • Southern District Of New York Pares Claims In Putative Class Action Against Pharmaceutical Company
     
    04/09/2019

    On March 29, 2019, Judge J. Paul Oetken of the United States District Court for the Southern District of New York partially granted a motion to dismiss claims under the Securities Exchange Act of 1934 and Rule 10b-5 thereunder in a putative class action against a pharmaceutical company and certain of its executives.  In re Mylan N.V. Securities Litigation, No. 16-cv-7926 (JPO) (S.D.N.Y. Mar. 29, 2019).  Plaintiffs alleged that defendants made misleading statements regarding, among other things, an alleged rebate scheme involving the company’s EpiPen, and the alleged inflation of prices for various generic drugs.  After the Court dismissed in part plaintiffs’ first amended complaint as noted in our prior post, plaintiffs filed a second amended complaint that added an executive as a defendant, new allegations to support scienter for previously dismissed claims, a new alleged corrective disclosure in support of loss causation arguments, and additional claims asserting fraud based on the failure to disclose illegal anticompetitive misconduct.  The Court held certain of plaintiffs’ new allegations based on anticompetitive behavior were inadequately pleaded but permitted one claim to go forward, and also held that certain new allegations of scienter were sufficient.
  • Southern District Of New York Dismisses Putative Securities Fraud Class Action Against Biopharmaceutical Company, Finding Interpretations Of Clinical Studies To Be Nonactionable Statements Of Opinion
     
    02/20/2019

    On February 13, 2019, United States District Judge William H. Pauley III of the United States District Court for the Southern District of New York dismissed a putative securities class action against clinical stage biopharmaceutical company New Link Genetics Corporation (the “Company”) and its co-founders.  Nguyen and Nguyen v. New Link Genetics Corp., et al., No. 16-cv-03545 (S.D.N.Y. Feb. 13, 2019).  Plaintiffs contended that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making a series of alleged misrepresentations regarding the development of the Company’s flagship pancreatic cancer drug that “painted a rosier picture for investors, who were misled into thinking the drug would obtain FDA approval.”  The Court dismissed without prejudice plaintiffs’ initial complaint, finding that, although plaintiffs adequately pled falsity concerning one alleged misstatement, plaintiffs had not sufficiently pled falsity as to any other statement and, in any event, failed to sufficiently plead loss causation for any of the alleged misstatements.  Having reviewed plaintiffs’ amended complaint and defendants’ motion to dismiss that complaint, the Court again dismissed plaintiffs’ claims, holding that plaintiffs’ new allegations regarding misstatements failed to sufficiently plead falsity and that plaintiffs’ loss causation allegations “merely parrot” the defective allegations in their previous complaint. 
  • Third Circuit Affirms In Part And Vacates In Part Dismissal Of Putative Securities Class Action Resulting From Merger, Finding Sufficient Certain Allegations That Bank Failed To Adequately Disclose Non-Compliant Practices In Proxy Materials
     
    01/08/2019

    On December 26, 2018, the United States Court of Appeals for the Third Circuit affirmed in part and vacated in part the dismissal of a putative securities class action against M&T Bank Corporation (the “Company”) and certain of its officers and directors.  Jaroslawicz v. M&T Bank Corp., et al., No. 17-3695 (3d Cir. Dec. 26, 2018).  Plaintiffs alleged that defendants violated Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 14a-9 by making misleading omissions in joint proxy statement materials (“Joint Proxy”) leading up to the merger of the Company with another consumer bank.  The alleged omissions concerned two non-compliant practices: “(1) M&T’s having advertised no-fee checking accounts but later switching those accounts to fee-based accounts (the ‘consumer violations’); and (2) deficiencies in M&T’s Bank Secrecy Act/anti-money laundering compliance program, particularly its ‘Know Your Customer’ program (the ‘BSA/AML deficiencies’).”  The United States District Court for the District of Delaware dismissed plaintiffs’ first and second amended complaints for failing to plausibly allege an actionable omission.  Plaintiffs appealed to the Third Circuit.
  • Second Circuit Summarily Affirms Grant Of Summary Judgment In Section 11 Securities Class Action, Finding That Defendants-Appellees Established Negative Causation As A Matter Of Law
     
    11/27/2018

    On November 19, 2018, the United States Court of Appeals for the Second Circuit summarily affirmed the grant of summary judgment in a securities class action in favor of a financial institution (the “Company”), several of its officer and directors, and the underwriters of the Company’s April 2008 offering.  In re Barclays Bank PLC Sec. Litig., No. 17-3293-CV, 2018 WL 6040846 (2d Cir. Nov. 19, 2018), as amended (Nov. 20, 2018).  Plaintiff, on behalf of purchasers of the Company’s April 8, 2008 Series 5 offering of American Depository Shares (“ADS”), alleged that those securities were issued pursuant to materially false and misleading offering materials, and brought claims against a group of defendants under Sections 11 and 15 of the Securities Act of 1933 (“Securities Act”).  Judge Paul A. Crotty of the United States District Court for the Southern District of New York granted summary judgment in favor of defendants-appellees, finding that (i) the Company had no duty to disclose the allegedly omitted information and (ii) the Company established its negative causation affirmative defense—i.e., that the alleged omissions did not cause plaintiff’s losses.  Plaintiff appealed and the Second Circuit affirmed in a summary order.   Summary orders do not have binding precedential effect.
  • Western District Of Washington Dismisses Securities Class Action For Failure To Adequately Allege Material Misstatements And Scienter
     

    10/09/2018

    On October 2, 2018, Judge John C. Coughenour of the United States District Court for the Western District of Washington dismissed a putative class action against Zillow Group, Inc. and certain of its executives asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  In re Zillow Group, Inc. Securities Litigation, No. C17-1387-JCC (W.D. Wash. Oct. 2, 2018).  Plaintiffs alleged misstatements by defendants regarding a Consumer Financial Protection Bureau (“CFPB”) investigation into, among other things, potential violations of the Real Estate Settlement Procedures Act (“RESPA”) arising out of Zillow’s “co-marketing” program between real estate agents and mortgage lenders.  The Court dismissed the action for failure to adequately allege material misstatements or scienter, but granted plaintiffs leave to amend.
  • Fifth Circuit Affirms Dismissal Of Securities Class Action For Failure To Adequately Allege Material Misstatements And Loss Causation
     

    10/09/2018
     

    On October 3, 2018, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal of a putative securities class action against Whole Foods Market, Inc. and certain of its executives under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  Emps.’ Ret. Sys. of the State of Haw. v. Whole Foods Mkt., Inc., —F.3d—, 2018 WL 4770729 (5th Cir. Oct. 3, 2018).  In connection with various regulatory investigations, Whole Foods admitted to mislabeling prepackaged foods such that it charged consumers for more food than the packages actually contained.  Plaintiffs alleged that, by virtue of those “weights and measures” violations, the company had made three categories of misstatements to investors:  (1) statements touting the company’s price competitiveness or efforts to increase its price competitiveness; (2) statements about the company’s commitment to transparency, quality, and corporate responsibility; and (3) statements announcing the company’s revenues, which plaintiffs alleged were artificially inflated as a result of the mislabeled packaging.  The Court held that the first two categories of allegations did not constitute material representations, and the third did not cause plaintiffs’ alleged loss.

  • Northern District Of California Dismisses Putative Securities Class Action For Failure To Adequately Allege Misstatements, Scienter, And Loss Causation
     
    09/17/2018

    On September 7, 2018, Judge Haywood S. Gilliam, Jr. of the United States District Court for the Northern District of California dismissed a putative class action against Impax Laboratories and certain of its officers under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder alleging that the company made material misstatements regarding (1) the cause of substantial price increases for two generic drugs and (2) trends associated with other drugs.  Fleming v. Impax Labs. Inc., No. 16 Civ. 6577 (N.D. Cal. Sept. 7, 2018).  The Court held that (a) the allegations regarding drug price increases adequately pleaded a material misstatement, but insufficiently alleged scienter or loss causation, and (b) the allegations regarding trends failed to plead either a material misstatement or scienter.  Plaintiff was, however, granted leave to replead.
  • Southern District Of California Dismisses Shareholder Class Action Alleging Exchange Act Claims For Failure To Allege Falsity And Loss Causation
     
    07/03/2018

    On June 19, 2018, Judge Gonzalo P. Curiel of the United States District Court for the Southern District of California dismissed a securities class action alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against BofI Holding, Inc. (“BofI” or “Company”), an online bank, and certain of its officers and directors. Mandalevy v. BofI Holding Inc. et al., No. 3:17-cv-00667 (S.D. Cal., June 19, 2018). The complaint’s allegations were based on public articles and a whistleblower complaint accusing the Company of making loans to “criminals and politically exposed persons” and announced regulatory activities. The Court dismissed the complaint, among other reasons, for failure to allege loss causation. Relying on the principles of the efficient market theory, the Court held that corrective disclosures generally cannot be based on already public information and that even information available only through Freedom of Information Act (“FOIA”) requests to regulators is considered to be publicly available.
  • Northern District Of California Rejects New Evidence Allegedly Establishing Scienter And Loss Causation As Basis To Set Aside Judgment
     
    02/21/2018

    On February 9, 2018, Judge Charles E. Breyer of the United States District Court for the Northern District of California held that “newly discovered evidence” regarding the basis for an auditor’s resignation and the scope of improper expense reimbursements did not justify reconsidering the Court’s prior dismissal of claims under Section 10(b) of the Securities Exchange Act of 1934 for failure to sufficiently allege scienter and loss causation.  Rok v. Identiv, Inc., 2018 WL 807147 (N.D. Cal. Feb. 9, 2018).

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    CATEGORIES: Loss CausationScienter
  • Ninth Circuit Holds That Loss Causation Can Be Established Without Demonstrating That The Alleged Fraud Was Revealed To The Market
     
    02/06/2018

    On January 31, 2018, the United States Court of Appeals for the Ninth Circuit affirmed in a per curiam decision a district court decision denying in part defendants’ motion for summary judgment on claims brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by investors in First Solar, Inc., one of the world’s largest producers of solar panels.  Mineworkers’ Pension Scheme et al. v. First Solar Inc., No. 15-17282 (9th Cir. Jan. 31, 2018).  After partially denying summary judgment, the district court certified for interlocutory appeal a question as to the correct test for loss causation under the Exchange Act in the Ninth Circuit.  In addressing this question, the Ninth Circuit resolved a perceived ambiguity between two lines of decisions in the Circuit by affirming the district court’s holding that a plaintiff can establish loss causation by proving that “the defendant misrepresented or omitted the very facts that were a substantial factor in causing the plaintiff’s economic loss” even if the alleged fraud was not itself disclosed to the market before the plaintiff suffered the loss.  In so doing, the Ninth Circuit rejected the defendants’ argument that “[s]ecurities fraud plaintiffs can recover only if the market learns of the defendants’ fraudulent practices” before the claimed loss.

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    CATEGORY: Loss Causation
  • Sixth Circuit Reverses Dismissal Of Putative Class Action, Finding Third-Party Complaints May Be Sufficiently “True” To Constitute New Information Under A Loss Causation Analysis
     
    12/19/2017

    ​On December 13, 2017, the United States Court of Appeals for the Sixth Circuit reversed the dismissal of a consolidated putative class action against Community Health Systems, Inc. (“Community”), its CEO, and CFO.  Norfolk Cty. Ret. Sys. et al. v. Cmty. Health Sys., Inc. et al., No. 16-6059 (6th Cir. Dec. 13, 2017).  Plaintiffs—shareholders of Community—alleged that Community and certain of its officers had violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by fraudulently inflating Community’s share price through false and misleading statements regarding Community’s operating model.  Plaintiffs alleged that the value of Community’s shares fell immediately in April 2011 after a Community competitor, Tenet Healthcare Corporation, publicly disclosed in a civil complaint against Community expert analyses alleging that Community’s profits depended largely on Medicare fraud, and fell further in October 2011 after one of Community’s officers admitted to certain of Tenet’s allegations.  Judge Kevin H. Sharp of the United States District Court for the Middle Division of Tennessee dismissed the putative class action complaint, finding that while plaintiffs had sufficiently pled that defendants intentionally made misleading statements, they had not adequately alleged that the misleading statements had caused plaintiffs’ losses because the disclosures came in the form of Tenet’s complaint—and was therefore regarded by the market as mere “allegations” rather than truth.  The Sixth Circuit reversed.

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  • Ninth Circuit Upholds Dismissal With Prejudice Of Class Action Lawsuit Due To Failure To Sufficiently Allege Loss Causation And Scienter
     
    11/28/2017

    On November 21, 2017, the United States Court of Appeals for the Ninth Circuit affirmed a dismissal by Judge Jon S. Tigar of the United States District Court for the Northern District of California of a putative class action against Yelp, Inc. (“Yelp”) and three of its senior executives.  Curry, et al. v. Yelp, Inc.et al., Case No. 16-15104 (9th Cir. Nov. 21, 2017).  Plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), alleging that Yelp made material misstatements regarding the authenticity and independence of the reviews posted by users on its website, and that those misstatements, when brought to light in media reports, caused Yelp’s stock value to drop.  The district court dismissed with prejudice plaintiffs’ amended complaint, finding that plaintiffs failed to sufficiently allege material false statements, loss causation, and scienter.  The Ninth Circuit affirmed the district court’s decision, concluding that plaintiffs failed to adequately allege loss causation and scienter and holding that the amended complaint fell short of the “demanding standards set for claims of federal securities law violations.”

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    CATEGORIES: Loss CausationScienter
  • Central District Of California Dismisses Securities Fraud Claim Against Facebook, Finding Plaintiffs Failed To Sufficiently Allege Scienter 
     
    10/17/2017

    On October 4, 2017, United States District Judge Stephen V. Wilson of the United States District Court for the Central District of California dismissed without prejudice a putative class action against Facebook, Inc., and three of its senior executives.  Anshen v. Facebook, No. 2:17-cv-00679-SVW-AGR (C.D. Cal., Oct. 4, 2017).  Plaintiffs alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act by fraudulently inflating Facebook’s “average duration of video view” advertisement efficacy metric, leading to a decrease in expected revenue and a drop in the company’s share price when the inaccuracy of the metric was later disclosed.  The company maintained that it inadvertently had overstated this key metric by 60—80% for two years because only advertisements that were viewed for more than three seconds were included in the calculation.  The Court rejected plaintiffs’ claims, finding that plaintiffs had failed to adequately plead scienter or causation.

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    CATEGORIES: Loss CausationScienter
  • Second Circuit Affirms $800 Million Judgment Under Securities Act And Certain State “Blue Sky” Laws, Addressing A Variety Of Securities Act Questions
     
    10/03/2017

    On September 28, 2017, the United States Court of Appeals for the Second Circuit affirmed a judgment, entered after a bench trial by Judge Denise Cote of the United States District Court for the Southern District of New York, awarding $806 million for claims brought under Sections 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) and provisions of the D.C. and Virginia “blue sky” laws in connection with the sale of residential mortgage backed securities (“RMBS”) to the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).  Fed. Hous. Fin. Agency for Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., Inc., —F.3d—, 2017 WL 4293322 (2d Cir. 2017).  The trial court found that the RMBS prospectus supplements falsely stated that the underlying loans had been originated generally in accordance with the mortgage originators’ loan underwriting guidelines.  In a 151-page opinion, the Second Circuit affirmed Judge Cote’s legal rulings and factual findings.  Many of the issues addressed in the opinion relate specifically to RMBS and the RMBS securitization process and are beyond the scope of this summary.  Several of the Second Circuit’s key holdings regarding the interpretation and application of the Securities Act may be of broader applicability and are highlighted below, although many such holdings also appear to have been informed to some degree by the specific context of the decision.

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  • Southern District Of New York Allows Putative Securities Fraud Class Action To Proceed Against Company That Pleaded Guilty To FCPA Violations
     
    09/26/2017

    On September 19, 2017, Judge Andrew L. Carter, Jr. of the United States District Court for the Southern District of New York allowed a putative securities fraud class action to proceed against VEON Ltd. (“VEON”), a telecommunications company formerly known as VimpelCom, and several of its current and former executives, denying in large part the company’s motion to dismiss.  In re VEON Ltd. Sec. Litig., 15-cv-08672 (ALC) (S.D.N.Y. Sept. 19, 2017).  Plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) asserting that VEON’s failure to disclose in its SEC filings its admitted bribery scheme in Uzbekistan made the company’s statements about its growth materially misleading.  While VEON argued that plaintiffs’ claims were an impermissible attempt to enforce the Foreign Corrupt Practices Act (“FCPA”), for which there is no private right of action, the Court disagreed, holding that plaintiffs’ allegations were sufficiently distinct and sufficient to plead violations of Sections 10(b) and 20(a) of the Exchange Act.

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  • California District Court Dismisses Securities Fraud Class Action, Finding News Reports Insufficient To Support A Claim Absent “Corroborating Details”
     
    09/18/2017

    On September 6, 2017, Judge Fernando M. Olguin of the Central District of California granted in part and denied in part a motion by defendants to dismiss a putative securities fraud class action against Goldcorp, Inc., a gold mining company, its former CEO Charles A. Jeannes, and other current and former officers of Goldcorp.  Cowan v. Goldcorp, No. 16-CV-6391 (C.D. Cal. Sept. 6, 2017).  The complaint asserted that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by misleading investors about pollution levels at one of Goldcorp’s major mines in Mexico.  In denying in part and granting in part the motion to dismiss, the Court ruled that—with the exception of a statement by Goldcorp’s former CEO—the complaint failed to adequately allege a materially false or misleading statement, noting that the complaint relied extensively on allegations raised in a Reuters article and lacked any corroboration.
     
  • California District Court Denies Dismissal Of Securities Fraud Class Action, Finding Public Information Is Not Immaterial As A Matter Of Law
     
    09/18/2017

    On September 6, 2017, Judge Andrew J. Guilford of the Central District of California denied motions to dismiss a putative securities class action asserting claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Banc of California (“Banc”) and its former CEO, Steven Sugarman.  In re Banc of Cal. Sec. Litig., No. 17-CV-118 (C.D. Cal. Sept. 6, 2017).  Based largely on a short seller report published online, the complaint alleged among other things that defendants omitted information regarding Sugarman’s alleged financial and business ties to Jason Galanis, an individual who pled guilty to criminal securities fraud in connection with other companies.  In denying the motions to dismiss, the Court shed light on how courts might evaluate claims based on blog posts, an increasingly common basis for claims in securities cases.
  • Western District Of Texas Dismisses Securities Fraud Suit Against Whole Foods, Finding Alleged Knowledge Of In-House Counsel Could Not Be Imputed To Individual Defendants
     
    09/06/2017

    On August 25, 2017, Judge Lee Yeakel of the United States District Court for the Western District of Texas dismissed with prejudice a putative securities class action against Whole Foods Market, Inc. and certain of its officers.  Markman v. Whole Foods Market Inc. et al, No. 1:15-cv-681-LY (W.D. Tex. Aug 25, 2017).  Plaintiffs alleged that defendants’ knowingly or recklessly engaged in a scheme to overcharge customers by placing inaccurate food-weight labels on prepackaged foods, thereby rendering Whole Foods’ financial statements false and misleading, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).  Lead plaintiffs—the Employees’ Retirement System of the State of Hawaii—filed a second amended complaint (“SAC”) after the Court dismissed their original complaint for failure to state a claim.  The Court held that the SAC failed to adequately plead a material misrepresentation or omission, scienter, and loss causation, and denied plaintiffs’ request for leave to amend the complaint again.

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  • Northern District Of California Finds Allegations Of Scienter Sufficient Based On “Deliberate Recklessness” Standard
     
    05/09/2017

    On May 1, 2017, Judge Edward Davila of the United States District Court for the Northern District of California denied a motion to dismiss a putative securities fraud class action against Finisar Corporation and certain executives, in which plaintiffs alleged that the company had falsely denied an inventory build-up of key telecom products by Finisar’s customers, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”).  In re Finisar Corp. Sec. Litig., 2017 WL 1549485 (N.D. Cal. May 1, 2017).  The Court had previously dismissed the case for failure to allege a material misrepresentation, but the United States Court of Appeals for the Ninth Circuit reversed, holding that plaintiffs had adequately alleged a false statement in that they asserted that defendants had denied knowledge of an inventory build-up by customers in the face of evidence that they knew of the issue.  On remand, the District Court found the complaint also adequately alleged scienter and loss causation. 

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    CATEGORIES: Loss CausationScienter
  • Virgin Islands District Court Dismisses Securities Fraud Claims For Failure To Allege Falsity And Loss Causation
     
    04/18/2017

    On April 6, 2017, Judge Harvey Bartle III, sitting by designation in the United States District Court for the District of the Virgin Islands, dismissed a putative class action against Altisource Asset Management Corporation (“AAMC”) and certain of its former directors and officers under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  City of Cambridge Ret. Sys. v. Altisource Asset Mgmt. Corp., No. 1:15-cv-00004, slip op. (D.V.I. Apr. 6, 2017), ECF No. 74.  Plaintiffs alleged that AAMC—a provider of asset management and corporate governance advising services related to mortgage servicing—made material misstatements in SEC filings and other disclosures relating to services it provided to the mortgage servicing company Ocwen Financial Corporation (“Ocwen”) and certain related companies.  The Court held that plaintiffs’ allegations were insufficient to demonstrate that the alleged misstatements were false or misleading, and further that plaintiffs failed to show that their claimed losses were caused by the alleged misstatements at issue. 

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  • New York Appellate Court Dismisses CDO-Related Fraud Claims, Because Plaintiffs Failed To Show That Misrepresentations, Not Market Forces, Caused Their Losses
     
    03/14/2017

    On March 3, 2017, the First Department of the Appellate Division of New York Supreme Court reversed a lower court’s ruling and ordered summary judgment to be entered in favor of the defendant, TCW Asset Management Company (“TCW”), because plaintiffs failed to meet their burden of showing loss causation.  Basis Pac-Rim Opportunity Fund (Master) v. TCW Asset Management Co., No. 654033/12 (N.Y. App. Div. Mar. 3, 2017).  Plaintiffs asserted fraud claims against TCW alleging that it misled investors about the quality of the securities backing the collateralized debt obligation (“CDO”) at issue.  In reversing the trial court’s decision denying TCW’s motion for summary judgment, the First Department concluded that plaintiffs failed to produce any evidence demonstrating that “it was TCW’s misrepresentations, rather than market forces, which caused the investment losses.”

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    CATEGORY: Loss Causation
  • Southern District Of New York Dismisses Securities Fraud Claims, Finding There Was No Material Omission Regarding Association With Individual Indicted For Stock Manipulation Scheme
     
    03/14/2017

    On March 6, 2017, Judge Robert Sweet of the United States District Court for the Southern District of New York dismissed a putative class action against 6D Global Technologies, Inc. (“6D” or the “Company”) and certain of its officers and directors.  Puddu v. 6D Glob. Techs., Inc., No. 15-cv-8061 (RWS) (S.D.N.Y. Mar. 6, 2017).  Plaintiffs—purported shareholders of 6D—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 when they failed to disclose the Company’s association with an individual whom United States regulators have charged in connection with stock manipulation schemes.  The decision illustrates the challenges plaintiffs face when making claims based on alleged omissions because often there is no duty to disclose the omitted information.   

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  • Ninth Circuit Affirms DreamWorks Victory In Securities Lawsuit, Finding Stock Drops From Earnings Misses And Announcements Of SEC Investigation Insufficient For Pleading Loss Causation
     
    02/28/2017

    On February 17, 2017, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a putative securities class action brought against DreamWorks Animation SKG Inc. (“DreamWorks”), its CEO and CFO.  Roofers Local No. 149 Pension Fund v. DreamWorks Animation SKG, Inc., et al., No. 15-55945, 2017 WL 655789 (9th Cir Feb. 17, 2017).  Plaintiff had alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Securities and Exchange Commission Rule 10b-5 promulgated thereunder, along with Section 20(a) of the Exchange Act, by knowingly making false or misleading statements regarding the profitability of DreamWorks’ animated movie “Turbo” during announcements of second- and third-quarter results in 2013.  The Court affirmed the dismissal of the claims, holding that plaintiff failed to adequately allege a false or misleading statement or loss causation, underscoring that complaints filed in response to poorer-than-expected results and/or the mere announcement of a regulatory investigation are not likely to succeed.

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    CATEGORIES: Loss CausationScienter
  • Vivendi Files Petition For Rehearing Challenging Second Circuit’s Adoption Of Controversial “Maintenance Theory” Of Loss Causation In Securities Class Action
     
    10/17/2016

    On October 11, 2016, Vivendi, S.A. moved for panel rehearing and rehearing en banc before the United States Court of Appeals for the Second Circuit following its September 27, 2016, decision affirming a jury verdict and judgment for shareholder plaintiffs in a securities class action suit.  Petition for Rehearing En Banc, In re Vivendi, S.A. Sec. Litig., No. 15-180 (2d Cir. filed Oct. 11, 2016); Second Circuit Affirms Judgment Following Rare Jury Trial In Securities Class Action, Shearman & Sterling LLP Need-To-Know Litigation Weekly (Oct. 3, 2016).

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  • Second Circuit Affirms Judgment Following Rare Jury Trial In Securities Class Action
     
    10/03/2016

    On September 27, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the judgment for shareholder plaintiffs in a securities class action suit against Vivendi Universal, S.A. (“Vivendi”), following a lengthy jury trial, which found Vivendi liable for securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934.  In re Vivendi, S.A. Securities Litigation, No. 15-180-cv(L), 15-208-cv (XAP), 2016 WL 5389288 (2d Cir. Sept. 27, 2016).  Plaintiffs were a class of investors who purchased Vivendi common stock between 2000 and 2002.  In affirming, the Court found sufficient evidence in the record to support the jury’s conclusion that Vivendi materially misstated its liquidity risk in a manner that either inflated or maintained Vivendi’s stock price, and that the revelation of the truth about Vivendi’s liquidity risk caused a drop in Vivendi’s share price.  The case is significant for a number of reasons, including the affirmance of a verdict arising out of a rare securities class action trial, and its analysis of loss causation and the controversial “price maintenance” theory of loss causation.

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  • District Court Holds That A Blog Post Compiling “Far-Flung” But Publicly Available Information Was Not A Corrective Disclosure
     
    09/12/2016

    On September 2, 2016, Judge William Orrick of the Northern District of California dismissed with prejudice a putative class action against Cellular Biomedicine Group, Inc. (“CBMG”) alleging securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934.  Bonanno v. Cellular Biomedicine Group, Inc., No. 15-CV-01795-WHO, 2016 WL 4585753 (N.D. Cal. Sept. 2, 2016).  The Court held that plaintiffs failed to plead with particularity that a blog post compiling publicly available information about CBMG’s efforts to promote its stock was a corrective disclosure causing CBMG’s share price to drop, even in light of the allegation that the information was far-flung or effectively “hidden” or impossible for a lay person to compile. 

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    CATEGORY: Loss Causation
  • Sixth Circuit Revived Class Action Against Freddie Mac For Misleading Investors About Exposure To Subprime Mortgages
     
    07/25/2016

    On July 20, 2016, the U.S. Court of Appeals for the Sixth Circuit revived a putative class action against Federal Home Loan Mortgage Corporation (“Freddie Mac”).  Ohio Public Employees Retirement Sys. v. Federal Home Loan Mortgage Corp., et al., No. 14-4189, 2016 WL 3916011 (6th Cir. Jul. 20, 2016).  In reversing the U.S. District Court for the Northern District of Ohio, the Court found that plaintiff’s allegations regarding loss causation were sufficient to sustain a claim against Freddie Mac under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) for making materially false and misleading statements and omissions concerning its financial health.  

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    CATEGORIES: Loss CausationScienter
  • Southern District Of New York Partially Grants Motion To Dismiss Securities Claims In Virtus Investment Partners Securities Litigation
     
    07/11/2016

    On July 1, 2016, Judge William Pauley III of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative class action concerning Virtus Investment Partners, the parent of an investment advisory company that managed and provided advice to mutual funds.  See Youngers v. Virtus Inv. Partners Inc., No. 15-cv-8262 (S.D.N.Y. July 1, 2016).  Plaintiffs purported to assert claims under Section 10(b) of the Securities Exchange Act of 1934 and Sections 11 and 12(a)(2) of the
    Securities Act of 1933, on behalf of investors who purchased shares in certain Virtus mutual funds between May 8, 2010 and December 22, 2014.  Plaintiffs’ allegations concerned statements in the funds’ registration statement that the above-market performance of the funds using a particular investment strategy (the “AlphaSector” strategy) was calculated based on live trading since 2001.  Plaintiffs alleged that the pre-2008 returns were actually generated using only back-testing, as the algorithm was not developed until 2008.  

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