On March 24, 2025, Judge Rita F. Lin of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative class action against a technology company (the “Company”) and certain of its officers.
Ami-Government Emps. Provident Fund Mgmt. Co. LTD., et al., v. Alphabet Inc., et al., No. 23-cv-01186-RFL (N.D. Cal. March 24, 2025). We
previously covered the Court’s decision dismissing plaintiffs’ initial complaint without prejudice. In their amended complaint, plaintiffs asserted claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5 based on alleged misrepresentations regarding the Company’s digital advertising technology business and support of user privacy. The Court held that plaintiffs had adequately pleaded their claims with respect to congressional testimony by the Company’s Chief Executive Officer, which stated that in the Company’s advertising auction platform, the “channel through which a bid is received does not otherwise affect the determination of the winning bidder,” because plaintiffs had adequately alleged that the auctions in fact favored bids submitted through certain platforms and that the CEO was sufficiently involved in negotiations regarding these platforms to have the requisite state of mind. The Court otherwise dismissed the remainder of plaintiffs’ claims with prejudice.
The Company owns and operates the leading publisher digital advertising server, as well as the leading digital advertising exchange that allows potential advertisers to instantaneously bid through an electronic auction for advertising space on its server. Plaintiffs alleged that the Company manipulated bidding in auctions that took place on these platforms and misrepresented its practices to investors, causing them to sustain losses when those practices were revealed.Plaintiffs challenged two categories of alleged misstatements: (i) alleged statements made in a September 14, 2020 written response to a question posed to the Company’s CEO when he testified before Congress regarding how the Company’s advertising technology products worked, and (ii) alleged statements posted on the Company’s website on September 29, 2020 concerning the bidding process on the Company’s platform, which were not attributed to any individual but contained language similar to the CEO’s written testimony.
Turning first to the congressional testimony, the Court determined that plaintiffs had sufficiently pled that the statement that “the channel through which a bid is received does not otherwise affect the determination of the winning bidder” was false because the complaint identified a contract that purportedly extended to the counterparty certain benefits in the auction process, including additional time to submit bids, greater access to information about the consumer to whom the impression was targeted, and having their bid data shielded from the Company’s post hoc bid analysis that allowed the Company to outbid other auction participants.The Court also held that plaintiffs had adequately alleged the requisite state of mind, reasoning that the CEO was allegedly aware of the terms of the contract and the advantages that the counterparty received, and therefore allegedly knew his statement was false.
Turning next to the website statements, the Court held that plaintiffs adequately alleged that a statement that “[a]ll participants in the unified auction . . . compete equally for each impression” was false, noting the alleged contract that purportedly provided participants in the auction with significant advantages.The Court also held that the statement was material because it related to issues that were the subject of near-contemporaneous congressional testimony by the CEO and implicated one of the Company’s top revenue sources.However, the Court held that plaintiffs failed to plead scienter as to the website statements because they failed to allege that any of defendants
made the statements, reasoning that, although the statements were similar to those made in the CEO’s congressional testimony, plaintiffs could not link the CEO to the statements, nor could the CEO’s scienter be attributable to the Company, because plaintiffs had not alleged any facts demonstrating the CEO knew of the website statements.The Court noted that “a company does not commit securities fraud every time there is a significant error somewhere on its website that it inconsistent with facts known to the CEO.” Accordingly, the Court dismissed the claims based on the website statements with prejudice.
Finally, the Court determined that plaintiffs adequately alleged loss causation with respect to the surviving misstatement, noting that when regulatory actions were brought against the Company arising from alleged “rigging of auctions” in its digital advertising business, the Company’s stock price declined.
