Securities

Rule 10b-5 proscribes untrue statements of a material fact or omissions to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.  This decision holds that "pure omissions" do not violate the regulation.  A pure omission occurs when a speaker says nothing, in circumstances that… Read More

In May 2020, defendant announced that it had developed a potential cure for COVID-19 which had shown promising results in in vitro tests.  Defendant's stock soared for about a week after the announcement, after which less rosy reports were issued and the stock fell back down again.  This decision affirms dismissal of a 10b-5 claim against defendant.  Its announcement did… Read More

The trial court awarded $22 million in civil penalties against defendants for having committed UCL and FAL violations for over a decade in promoting their private university primarily to older, poor, minority students, only a quarter of whom graduated.  In calculating civil penalties at $9 per misleading sales call, the trial court erred in including in the penalty calculation calls… Read More

Under section 16(b) of the Securities Exchange Act, a securities issuer may recover from a director or officer short swing profits made from purchase and sale of the issuer's securities within a six month period.  However, under 17 CFR 240.16b-3(d)(1), transactions between an issuer and its directors or officers are exempted if approved by the issuer's board of directors.  This… Read More

After Habelt filed a class action for securities fraud against iRhythm, Miss. Public Retirement System was appointed the class representative pursuant to the PSLRA.  The Retirement System's amended complaint was dismissed without leave to amend.  The Retirement System did not appeal from the dismissal.  The mere fact that Habelt remained a name in the case caption didn't confer standing on… Read More

A Delaware corporation's bylaw requiring any shareholder derivative suit be brought in Delaware Chancery Court is enforceable.  Such a forum selection clause does not offend any federal statute or public policy.  Here, the complaint alleged a claim under Securities Exchange Act section 14(b) (15 USC 78n) which governs proxy statements.  The Securities Exchange Act's non-waiver provision applies only to the… Read More

A claim under section 11 of the Securities Act (15 USC 77k) may be stated only by purchasers of shares registered under the registration statement that contains the allegedly misleading statements, not other unregistered shares that become marketable once the registration of other shares is accomplished. Read More

Following Merck & Co., Inc. v. Reynolds (2010) 130 S.Ct. 1784, this decision holds that the statute of limitations does not begin to run on a securities claim under 28 USC 1658 until the plaintiff can plead each of its elements with sufficient detail and particularity to survive a motion to dismiss for failure to state a claim.  Defendants’ allegedly… Read More

To state a claim under section 14(e) of the Securities Exchange Act (15 USC 78n(e)), the plaintiff must allege facts showing (1) subjective falsity--that the defendants did not actually believe the revenue projections they sent shareholders, (2) objective falsity-- the revenue projections did not reflect the company's likely future, (3) shareholders' reliance on the projections in approving the tender offer,… Read More

Section 12(a)(2) of the Securities Act (15 USC 77l(a)(2)) imposes liability on any person who offers or sells a security by means of untrue statements or concealments.  In Pinter v. Dahl, 486 U.S. 622, 643, 647-48 (1988), the Supreme Court held that a person may be liable as a “seller” under the predecessor version of § 12(a) if the person… Read More

The two defendants purchased municipal bonds for a third party, Riccardi.  The defendants bought the bonds in their own names, but with Riccardi's money and immediately transferred the bonds to him.  They shared profits on Riccardi's resale of the bonds.  By this means, Riccardi was able to buy more of popular municipal bonds than he otherwise would have been able… Read More

This decision affirms dismissal of a 10b-5 securities complaint, holding that the complaint did not adequately allege falsity or loss causation.  The alleged omission concerned the results of a stage 1 drug trial for a cancer treatment drug.  Nektar reported that the drug increased cancer-fighting T cells by 30 times in the stage one test group of 10 patients.  Plaintiffs… Read More

Defendant, a Delaware corporation with headquarters in California, had a federal forum provision in its articles of incorporation which provided that any claims against it under the federal Securities Act of 1933 had to be brought in federal, not state, court.  This decision affirms an order dismissing without prejudice a Securities Act suit that one of the corporation's shareholders brought… Read More

In a direct listing, the issuing company files a registration statement with the SEC which then allows it to sell its registered shares directly to the public and allows its existing shareholders to do so as well.  Since direct listing does not involve bank financing of the issuance, there is no "lock up" period during which unregistered shares cannot be… Read More

Under the PSLRA, the district court must select the plaintiff (and attorney) to represent the plaintiff investor class.  At step one notice of the action is posted so class members can move to be named the representative plaintiff.  Groups of class members may join to pool their purchases and make a joint bid to be the representative plaintiffs.  At step… Read More

Under Corp. Code 185 and 1601, a shareholder of record may demand the right to inspect certain corporate records.  This decision holds that the beneficial owner of shares held in street name (i.e., in the name of the beneficial owner's broker) is not a shareholder of record and thus is not entitled to inspect corporate records. Read More

Buyers of VW's corporate bonds could not rely on the Affiliated Ute presumption of reliance on VW's non-disclosure of its diesel engines' pollution testing defeat devices because their complaint was not based solely or primarily on that omission, but instead also included allegations of multiple affirmative misrepresentations about environmental compliance and financial liabilities in its offering documents.  Thus, the case… Read More

To invoke the fraud-on-the-market presumption of reliance under Basic, Inc. v. Levinson (1988) 108 S.Ct. 978, the plaintiff must  prove: (1) that the alleged misrepresentation was publicly known; (2) that it was material; (3) that the stock traded in an efficient market; and (4) that the plaintiff traded the stock between the time the misrepresentation was made and when the… Read More

Under California's Securities Act (Corp. Code, 25400 and 25500, as under federal securities laws, the plaintiff must allege and prove loss causation--that is, that the alleged misstatement caused the rise or decline in stock price over which the plaintiff sues.  When the suit is brought in federal court, the loss causation element, like the rest of the fraud-based claim, must… Read More

Although Omnicare, Inc. v. Laborers Dist. Council Construction Ind. Pension Fund (2015) 135 S.Ct. 1318 dealt with misrepresentations under section 11 of the Securities Act (15 USC 77k(a)), this decision holds that Omnicare's rules with respect to when opinions can be deemed actionable misrepresentations apply to suits for false proxy statements under sections 14(a) and 20(a) of the Securities Exchange… Read More