In Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, No. 11-1085, 2013 WL 691001 (U.S. Feb. 27, 2013), the United States Supreme Court affirmed the decision of the United States Court of Appeals for the Ninth Circuit holding that a securities fraud plaintiff need not prove that the alleged false statements made by defendants were material in order to invoke the fraud-on-the-market presumption of reliance established by Basic, Inc. v. Levinson, 485 U.S. 224 (1988), at the class certification stage of the proceedings. The 6-3 majority opinion, written by Justice Ginsburg, resolved a split in the Circuits, which had pitted the First, Second, Fifth and, to a certain extent, Third Circuits against the Seventh and Ninth Circuits on this point. The Supreme Court’s decision deprives securities fraud defendants a means of limiting or effectively defeating a securities class action lawsuit at an early stage in the case before the bulk of fact discovery has begun.Continue Reading United States Supreme Court Holds that Class Action Securities Fraud Plaintiffs Need Not Prove the Materiality of the Alleged False Statements or Omissions to Support Certification of a Class, Resolving Circuit Split

In Kleinman v. Elan Corporation, No. 11-3706-cv, 2013 WL 388006 (2d Cir. Feb. 1, 2013), the United States Court of Appeals for the Second Circuit affirmed the dismissal of a securities class action lawsuit alleging that defendants violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities & Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder, by issuing a misleading press release describing the preliminary clinical trial results for an Alzheimer’s drug. The Second Circuit concluded that, in the context of the full presentation of details surrounding the study of the drug, nothing omitted from the press release rendered the release false or misleading to a reasonable investor. This decision reconfirms that in order to be actionable under Section 10(b) and Rule 10b-5, an alleged omission must be misleading, not just material.Continue Reading Second Circuit Affirms Dismissal of Securities Fraud Claims Relating to Allegedly Misleading Press Release

In the first SEC enforcement action of its kind, the SEC announced on February 8, 2013 that it had filed civil charges against, and received an emergency order to freeze assets of, the Intercontinental Regional Center Trust of Chicago, a designated Regional Center under the EB-5 Immigrant Investor Program administered by U.S. Citizenship and Immigration Services (USCIS), and the Regional Center’s principal. See full complaint here.Continue Reading SEC Freezes Assets and Brings Civil Charges against EB-5 Investor Visa Project

In Freeman Investments, LP v. Pacific Life Insurance Co., No. 09-55513, 2013 WL 11884 (9th Cir. Jan 2, 2013), the United States Court of Appeals for the Ninth Circuit held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) precluded plaintiffs’ class claims for violations of California Business & Professions Code § 17200, but did not preclude plaintiffs’ breach of contract claims. The Court held that the Section 17200 claims were predicated on alleged misrepresentations and omissions, whereas the contract claims were not. The Ninth Circuit’s holding reaffirms the courts’ broad application of SLUSA to class claims that are dependent upon allegations of misrepresentations or omissions.Continue Reading Ninth Circuit Applies Securities Litigation Uniform Standards Act to Affirm Dismissal of Section 17200 Class Action Involving Variable Life Insurance Policies

In Gibbons v. Malone, No. 11-3620-cv, 2013 WL 57844 (2d Cir. Jan. 7, 2013), the United States Court of Appeals for the Second Circuit held that the “short-swing profits rule” imposed by Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), requiring corporate insiders to disgorge profits earned from certain purchases and sales of their company’s securities that take place within a six month period, applies only to purchases and sales of the same equity security of the company. This decision clarified the restrictions that Section 16(b) places on the types of securities that are covered by the statute, thereby limiting the scope of the statute.Continue Reading The Second Circuit Finds No Section 16(b) Violation Where Different Securities of the Same Issuer Are Bought and Sold

In In re Century Aluminum Co. Securities Litigation, No. 11-15599, 2013 U.S. App. LEXIS 24 (9th Cir. Jan. 2, 2013), the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a claim for violations of Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, on the ground that plaintiffs’ “tracing” allegations did not meet the pleading standard set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009) (the “Twombly/Iqbal standard”). The Court held that plaintiffs who purchased their shares in the aftermarket must plead facts with “sufficient specificity” to allow the court to draw a “reasonable inference” that their shares can be traced back to those that were issued under the allegedly false and misleading offering materials. This decision marks the first time the Ninth Circuit has applied the heightened Twombly/Iqbal standard to tracing allegations in a Section 11 case.Continue Reading Ninth Circuit Applies Heightened Twombly/Iqbal Pleading Standard to Allegations of Tracing in a Section 11 Claim

In In re VeriFone Holdings, Inc. Securities Litigation, 2012 WL 6634351 (9th Cir. Dec. 21, 2012), the United States Court of Appeals for the Ninth Circuit reversed the dismissal of a securities fraud class action. Invoking the old adage that “the sum is greater than the parts,” the Court held that plaintiffs’ allegations of defendants’ scienter gave rise to a sufficiently strong inference of deliberate recklessness when considered “holistically.” In so holding, the panel seems to suggest that the long-standing “dual analysis” approach applied by courts in the Ninth Circuit when analyzing allegations of scienter under the heightened pleading requirements imposed by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 (“Reform Act”), should be applied less rigorously in light of the United States Supreme Court’s decision in Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1324 (2011) [blog article here].Continue Reading Ninth Circuit Reiterates that District Courts Must Analyze Allegations of Scienter “Holistically” In Determining Whether a Plaintiff Has Adequately Pleaded Securities Fraud Claims

In South v. Baker, C.A. No. 7294-VCL, 2012 Del. Ch. LEXIS 229 (Del. Ch. Sept. 25, 2012), the Delaware Court of Chancery adopted a rebuttable presumption of inadequate representation when a stockholder asserts a “Caremark claim” without first investigating the claim using Section 220 of the Delaware General Corporation Law (“Section 220”), a statute allowing under certain conditions stockholder inspection of the corporation’s books and records.  Because the dismissal of a stockholder’s derivative action due to inadequate representation has no preclusive effect on the litigation efforts of other stockholders, the court in South adopted and applied the presumption to ensure that its order dismissing with prejudice plaintiffs’ inadequately pled complaint would not bar other stockholders of the corporation (who had properly opted to use Section 220 rather than sue in the first instance) from later pursuing the same claim on behalf of the corporation.Continue Reading Delaware Chancery Court Holds That a Stockholder Inadequately Represents a Corporation in Derivative Litigation When He or She Files a Caremark Claim Without First Making a Section 220 Books and Records Demand

In Louisiana Municipal Police Employees’ Retirement System v. Lennar Corp., C.A. No. 7314-VCG, 2012 WL 4760881 (Del. Ch. Oct. 5, 2012), the Delaware Court of Chancery, on a motion for summary judgment, rejected a stockholder’s demand under Section 220 of the Delaware General Corporation Law (“Section 220”).  Section 220 provides that a stockholder in a Delaware corporation may, under certain conditions, request and cause the corporation to make available for inspection certain books and records, provided the demand has a proper purpose and some credible basis exists for suspecting mismanagement, waste, or wrongdoing.  In this instance, although the court found the purpose of the demand — investigation of the corporation’s compliance with labor law — to be proper, it held that the evidence presented did not amount to a credible showing that legitimate issues of mismanagement existed to warrant an investigation.Continue Reading Delaware Chancery Court Rejects Stockholder’s Section 220 Books and Records Demand Based Upon Failure to Demonstrate “Credible Basis” for Inspection

In In re Rigel Pharmaceuticals, Inc. Securities Litigation, No. 10-17619, 2012 WL 3858112 (9th Cir. Sept. 6, 2012), the United States Court of Appeals for the Ninth Circuit held that disagreements between plaintiffs and defendants over statistical methodology and study design are insufficient to allege a materially false statement for purposes of pleading a securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Securities & Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. The Ninth Circuit held that merely because the statistical methodology chosen — and disclosed — by the defendant may not have been the best or most acceptable methodology, use of such an allegedly less-than-optimal methodology does not render statements about the results of the methodology false or misleading for purposes of stating a claim. This is a decision of first impression for the Ninth Circuit.Continue Reading Ninth Circuit Holds that Allegations a Defendant Should Have Used a Different Statistical Methodology During Drug Trials is not Sufficient to Allege Falsity Under Section 10(b) and Rule 10b-5