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Northern District Of California Dismisses Class Action Against Power Solutions And Modules Company
06/24/2025On June 6, 2025, Judge Richard Seeborg of the United States District Court for the Northern District of California granted without prejudice a motion to dismiss a putative securities fraud class action against a developer of modular power components and power systems (the “Company”) and its chief executive officer asserting claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5. In re Vicor Sec. Litig., No. 24-cv-4196-RS (N.D. Cal. June 6, 2025). Plaintiffs, a class of short-sellers, alleged that defendants made material misstatements about a forthcoming business “ramp” with a significant existing customer, which they claimed artificially inflated the Company’s stock price and forced them to cover their short positions at a loss.
Plaintiffs allege that they took short positions in the Company in May 2023, after the Company allegedly reported declining revenues and accounts receivable due to the loss of one of its two major customers. In July 2023, the Company allegedly issued a press release and held an investor call concerning its second quarter earnings, announcing, in essence, that the Company “expected to ramp” up production of a new system in Q4 2023 for a “significant” customer’s new AI platform. The stock price allegedly surged the next day, forcing plaintiffs to allegedly cover their short positions. However, plaintiffs allege that during the Company’s next earnings call in October 2023, defendants clarified in response to analyst questions that the “ramp” was not tied to any one particular customer and that the Company was holding “substantial conversations now with customers” to “diversify” the Company’s customer base away from its primary two clients. Plaintiffs filed suit, alleging that defendants’ July 2023 statements were materially misleading and caused their losses.
The Court primarily held that plaintiffs failed to plead any actionable material misstatement. Parsing through the factual allegations, the Court disagreed that defendants’ July 2023 statement “gave the unmistakable impression that a concrete deal” had been entered between the Company and a significant customer to produce new systems for Q4 2024. The Court found it significant that plaintiffs did not allege that defendants mentioned the existence of a contract, agreement, order, or any other fact that would create an inference that defendants were alluding to a business opportunity in July 2023 that did not materialize as expected. The Court further found that the challenged statements were couched in terms of “expectation” and “anticipation,” and accompanied by robust cautionary language, thus falling within the PSLRA’s safe harbor provision.
The Court next held that plaintiffs failed to allege facts to enable a strong inference defendants acted with scienter. The Court cited the absence of facts in the complaint showing that defendants knew their July 2023 statements were false when made and found that the mere fact the anticipated ramp did not materialize as expected was insufficient to infer fraudulent intent.
Finally, the Court dismissed the Section 20(a) claims as a matter of law, as such claims are entirely derivative of the deficient Section 10(b) claims. The Court’s dismissal is without prejudice.
