Justia U.S. 9th Circuit Court of Appeals Opinion SummariesArticles Posted in Securities Law
ALPHA VENTURE CAPITAL PARTNERS V. NADER POURHASSAN
The Ninth Circuit panel held that defendant was not required to disgorge to CytoDyn his short-swing profits from exercising options and warrants granted by CytoDyn, entitling him to purchase and later sell CytoDyn shares. The panel held that the short-swing transaction fell within an exemption, set forth in SEC Rule 16b-3(d)(1) because the option and warrant award was “approved by the board of directors” of CytoDyn. The circuit court concluded that the affirmative votes of three of CytoDyn’s five board members, at a meeting where only four board members were present, were sufficient, and a unanimous decision was not required under either the plain text of Rule 16-3(d)(1), Delaware corporate law, or CytoDyn’s bylaws.The court left the determination of what a corporate board must do to approve insider-issuer acquisitions to the laws of the state where the corporation is incorporated. Reasoning that federal securities law defers to—and does not displace—the state laws governing corporate boards. Thus, the circuit court affirmed the district court’s ruling. View "ALPHA VENTURE CAPITAL PARTNERS V. NADER POURHASSAN" on Justia Law
Weston Family Partnership LLLP v. Twitter, Inc.
The Ninth Circuit affirmed the district court's dismissal of a securities fraud lawsuit against Twitter under sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5, alleging that Twitter misled investors by hiding the scope of software bugs that hampered its advertisement customization. The panel concluded that securities laws do not require real-time business updates or complete disclosure of all material information whenever a company speaks on a particular topic. Rather, a company can speak selectively about its business so long as its statements do not paint a misleading picture. In this case, Twitter's statements about its advertising program were not false or misleading because they were qualified and factually true, and the company had no duty to disclose any more than it did under federal securities law. View "Weston Family Partnership LLLP v. Twitter, Inc." on Justia Law
Pirani v. Slack Technologies, Inc.
The Ninth Circuit affirmed the district court's order denying in part a motion to dismiss and ruling that plaintiff had standing to sue Slack and individual defendants under Sections 11 and 12(a)(2) of the Securities Act of 1933 based on shares issued under a new rule from the New York Stock Exchange allowing companies to make shares available to the public through a direct listing. Plaintiff alleges that Slack's registration statement was inaccurate and misleading because it did not alert prospective shareholders to the generous terms of Slack's service agreements, which obligated Slack to pay for service disruptions; nor did it disclose that these service disruptions were frequent in part because Slack guaranteed 99.99% uptime; and the statement downplayed the competition Slack was facing from Microsoft Teams at the time of its direct listing.The panel concluded that plaintiff had standing to bring a claim under Sections 11 and 12(a)(2) because his shares could not be purchased without the issuance of Slack's registration statement, thus demarking these shares, whether registered or unregistered, as "such security" under Sections 11 and 12 of the Act. The panel explained that because standing existed for plaintiff's section 11 claim against Slack, standing also existed for a dependent section 15 claim against controlling persons. The panel did not resolve the issue of whether plaintiff has sufficiently alleged the other elements of Section 12 liability. View "Pirani v. Slack Technologies, Inc." on Justia Law
Mersho v. United States District Court for the District of Arizona
The Ninth Circuit granted in part a petition for a writ of mandamus and ordered the district court to vacate its order appointing an individual as lead plaintiff in a consolidated securities fraud action against Nikola and related defendants. In the underlying action, plaintiffs alleged that they suffered losses from buying Nikola securities after a non-party report described apparent false statements made by the founder and contained in company advertising materials. Petitioners Mersho, Chau, and Karczynski moved to be lead plaintiff as a group under the name Nikola Investor Group II (Group II).In a securities fraud class action, the Private Securities Litigation Reform Act (PSLRA) requires the district court to identify the presumptive lead plaintiff, who is the movant with the largest financial interest and who has made a prima facie showing of adequacy and typicality. Once the presumption is established, competing movants can rebut the presumption by showing that the presumptive lead plaintiff will not fairly or adequately represent the class.The panel granted the petition to the extent it seeks to vacate the district court's order appointing Plaintiff Baio as lead plaintiff. The panel concluded that four of the five Bauman factors weigh in favor of mandamus relief and thus a writ of mandamus is appropriate. In regards to the third Bauman factor, the panel explained that the district court clearly erred by finding that the presumption had been rebutted. In this case, the district court failed to point to evidence supporting its decision, instead relying on the absence of proof by Group II regarding a prelitigation relationship and its misgivings. Therefore, the district court did not comport with the burden-shifting process Congress established in the PSLRA. The panel also concluded that the first, second, and fifth Bauman factors weigh in favor of granting the writ. However, the panel declined to instruct the district court to appoint Group II as lead plaintiff, remanding for the district court to redetermine the issue. View "Mersho v. United States District Court for the District of Arizona" on Justia Law
Puerto Rico Government Employees and Judiciary Retirement Systems Admin. v. Volkswagen AG
The Ninth Circuit reversed the district court's denial of summary judgment to defendant in a putative securities fraud class action brought by a public pension fund that purchased bonds issued by defendant. This case arose on interlocutory appeal to address the scope of the presumption of reliance in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), in "mixed" securities-fraud cases that allege both omissions and affirmative misrepresentations.Because the panel concluded that the allegations in this case cannot be characterized primarily as claims of omission, the panel held that the Affiliated Ute presumption of reliance does not apply. In this case, plaintiff alleges over nine pages of affirmative misrepresentations that it and its investment advisor relied upon when purchasing the bonds from Volkswagen. The panel explained that, while this is a mixed case that alleges both omissions and affirmative misrepresentations, plaintiff's allegations cannot be characterized primarily as claims of omission, so the Affiliated Ute presumption of reliance does not apply. The panel remanded for the district court to further consider whether a triable issue of fact exists. View "Puerto Rico Government Employees and Judiciary Retirement Systems Admin. v. Volkswagen AG" on Justia Law
Rhode Island v. Alphabet, Inc.
After Cambridge Analytica improperly harvested user data from Facebook's social network, Google discovered that a security glitch in its Google+ social network had left the private data of some hundreds of thousands of users exposed to third-party developers. Google and its holding company, Alphabet, chose to conceal this discovery, made generic statements about how cybersecurity risks could affect their business, and stated that there had been no material changes to Alphabet's risk factors since 2017.Rhode Island, in a consolidated amended complaint, filed suit against Alphabet, Google, and others, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 for securities fraud, as well as violations of Section 20(a) of the Exchange Act. The district court granted Alphabet's motion to dismiss on the grounds that Rhode Island failed to adequately allege a materially misleading misrepresentation or omission and that Rhode Island failed to adequately allege scienter.The Ninth Circuit concluded that the complaint adequately alleged that Google, Alphabet, and individual defendants made materially misleading statements by omitting to disclose these security problems and that defendants did so with sufficient scienter, meaning with an intent to deceive, manipulate, or defraud. Applying an objective materiality standard, the panel concluded that Rhode Island's complaint plausibly alleges the materiality of the costs and consequences associated with the Privacy Bug, and its public disclosure, and how Alphabet's decision to omit information about the Privacy Bug in its 10-Qs significantly altered the total mix of information available for decisionmaking by a reasonable investor. Furthermore, the complaint adequately alleges scienter for the materially misleading omissions from the 10-Q statements. The panel also concluded that Rhode Island adequately alleged falsity, materiality, and scienter for the April 2018 and July 2018 10-Q statements. Accordingly, the panel reversed the district court's holdings to the contrary and reversed the dismissal of the section 20(a) control-person claims based on the 10-Q statements.Because the complaint does not plausibly allege that the remaining statements at issue are misleading material misrepresentations or omissions, the panel affirmed the district court's dismissal of the Section 10(b) and Rule 10b-5(b) statement liability claims based on these statements. The panel also affirmed the district court's dismissal of the Section 20(a) controlling-person claims for these statements. Finally, because the district court erred in sua sponte dismissing Rhode Island's claims under Rule 10b-5(a) and (c) when Alphabet had not targeted those claims in its motion to dismiss, the panel reversed the dismissal of the claims under Section 10(b) and Rule 10b-5(a) and (c) against all defendants and remanded to the district court. The panel also reversed the dismissal of Rhode Island's claims under Section 20(a) to the extent those claims depend on claims alleging violations of Rule 10b-5(a) and (c). View "Rhode Island v. Alphabet, Inc." on Justia Law
Irving Firemen’s Relief & Retirement Fund v. Uber Technologies, Inc.
After Uber’s founding in 2009, its valuation soared, with some investors assigning a valuation as high as $68 billion by mid-2016. Between June 2014 and May 2016, Kalanick, Uber’s founder, and Uber completed four preferred stock offerings, raising more than $10 billion in additional capital through limited partnerships and other entities. Irving Firemen’s Relief & Retirement Fund acquired Uber securities on February 16, 2016. In 2017, several alleged corporate scandals surfaced. By early 2018, investors estimated a nearly 30% decline in Uber’s valuation. Irving filed a putative class action against Uber and Kalanick alleging securities fraud under California Corporations Code sections 25400(d) and 25500. The Ninth Circuit affirmed the dismissal of the complaint, upholding the use of the federal standard for loss causation rather than the “less-rigid state law standard.” Irving did not state a claim because it did not adequately allege that Uber and Kalanick’s alleged fraudulent misstatements and omissions caused its alleged losses. Even assuming actionable misstatements by Uber and Kalanick and that news articles, a lawsuit, and government investigations revealed the truth to the market, Irving did not adequately and with particularity allege that these revelations caused the resulting drop in Uber’s valuation. View "Irving Firemen’s Relief & Retirement Fund v. Uber Technologies, Inc." on Justia Law
Golub v. Gigamon Inc.
The Ninth Circuit affirmed the district court's dismissal based on failure to state a claim of a putative securities class-action alleging violations of section 14(a) and 20(a) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 14a-9.The panel clarified that the standards for actionability explained in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175 (2015), with respect to falsity under section 11 of the Securities Act of 1933, also govern whether a plaintiff has sufficiently alleged the falsity of a statement of opinion under SEC Rule 14a-9 through either a misrepresentation-of-material-fact theory or an omission-of-material-fact theory. Omnicare identified three ways in which a statement of opinion may nonetheless involve a representation of material fact that, if that representation is false or misleading, could be actionable. First, every statement of opinion explicitly affirms that the speaker actually holds the stated belief. Second, some sentences that begin with opinion words like "I believe" contain embedded statements of fact. Third, a reasonable investor may, depending on the circumstances, understand an opinion statement to convey facts about how the speaker has formed the opinion. In this case, the panel applied the Omnicare standards in an accompanying memorandum disposition. View "Golub v. Gigamon Inc." on Justia Law
Panthera Investment Fund, L.P. v. H.C. Wainwright & Co., LLC
The Ninth Circuit affirmed the district court's dismissal of a securities fraud action against an investment bank, holding that the complaint failed sufficiently to allege scienter. Plaintiff's complaint stemmed from the bank's handling of MannKind's stock price. After an investment bank analyst published a report setting a target price of $7 per share for the company's stock, the stock surged 26 percent that day. Later that evening, the bank announced that it would act as the placing agent for a dilutive offering that priced that same stock at $6 per share. The stock price declined the next day.The panel explained that the complaint did not offer a plausible motive for the bank’s actions or provide compelling and particularized allegations about scienter, and thus it did not support the required strong inference that the defendant intentionally made false or misleading statements or acted with deliberate recklessness. In this case, the panel reasoned that the most plausible inferences are that someone failed to put MannKind on the watch list, failed to properly check the watch list, or failed to realize that a conflict existed when approving the report. View "Panthera Investment Fund, L.P. v. H.C. Wainwright & Co., LLC" on Justia Law
Anderson v. Edward D. Jones & Co., LP
The Ninth Circuit reversed the district court's dismissal of a class action brought by investors with a financial services firm. Plaintiffs alleged that Edward Jones breached its fiduciary duties under Missouri and California law, but the district court concluded that it did not have subject matter jurisdiction because the Securities Litigation Uniform Standards Act (SLUSA) prevents plaintiffs from bringing their claims as a class action consisting of fifty or more persons.The panel concluded that SLUSA does not bar plaintiffs' state law fiduciary duty claims because Edward Jones's alleged misrepresentation or omission that forms the basis for plaintiffs' fiduciary duty claims is not "in connection with the purchase or sale of a covered security." In this case, plaintiffs claim that Edward Jones breached its fiduciary duties under Missouri and California law by failing to conduct a suitability analysis, and they allege that this lack of suitability analysis caused them to move their assets from commission-based accounts to fee-based accounts, which was not in their best financial interest as low-volume traders. The panel explained that the alleged failure to conduct a suitability analysis was not material to the decision to buy or sell any covered securities. Accordingly, the panel remanded for further proceedings. View "Anderson v. Edward D. Jones & Co., LP" on Justia Law