On January 31, 2018, the United States Court of Appeals for the Ninth Circuit affirmed in a per curiam decision a district court decision denying in part defendants’ motion for summary judgment on claims brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by investors in First Solar, Inc., one of the world’s largest producers of solar panels.  Mineworkers’ Pension Scheme et al. v. First Solar Inc., No. 15-17282 (9th Cir. Jan. 31, 2018).  After partially denying summary judgment, the district court certified for interlocutory appeal a question as to the correct test for loss causation under the Exchange Act in the Ninth Circuit.  In addressing this question, the Ninth Circuit resolved a perceived ambiguity between two lines of decisions in the Circuit by affirming the district court’s holding that a plaintiff can establish loss causation by proving that “the defendant misrepresented or omitted the very facts that were a substantial factor in causing the plaintiff’s economic loss” even if the alleged fraud was not itself disclosed to the market before the plaintiff suffered the loss.  In so doing, the Ninth Circuit rejected the defendants’ argument that “[s]ecurities fraud plaintiffs can recover only if the market learns of the defendants’ fraudulent practices” before the claimed loss.

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​On December 13, 2017, the United States Court of Appeals for the Sixth Circuit reversed the dismissal of a consolidated putative class action against Community Health Systems, Inc. (“Community”), its CEO, and CFO.  Norfolk Cty. Ret. Sys. et al. v. Cmty. Health Sys., Inc. et al., No. 16-6059 (6th Cir. Dec. 13, 2017).  Plaintiffs—shareholders of Community—alleged that Community and certain of its officers had violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by fraudulently inflating Community’s share price through false and misleading statements regarding Community’s operating model.  Plaintiffs alleged that the value of Community’s shares fell immediately in April 2011 after a Community competitor, Tenet Healthcare Corporation, publicly disclosed in a civil complaint against Community expert analyses alleging that Community’s profits depended largely on Medicare fraud, and fell further in October 2011 after one of Community’s officers admitted to certain of Tenet’s allegations.  Judge Kevin H. Sharp of the United States District Court for the Middle Division of Tennessee dismissed the putative class action complaint, finding that while plaintiffs had sufficiently pled that defendants intentionally made misleading statements, they had not adequately alleged that the misleading statements had caused plaintiffs’ losses because the disclosures came in the form of Tenet’s complaint—and was therefore regarded by the market as mere “allegations” rather than truth.  The Sixth Circuit reversed.

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On November 21, 2017, the United States Court of Appeals for the Ninth Circuit affirmed a dismissal by Judge Jon S. Tigar of the United States District Court for the Northern District of California of a putative class action against Yelp, Inc. (“Yelp”) and three of its senior executives.  Curry, et al. v. Yelp, Inc., et al., Case No. 16-15104 (9th Cir. Nov. 21, 2017).  Plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), alleging that Yelp made material misstatements regarding the authenticity and independence of the reviews posted by users on its website, and that those misstatements, when brought to light in media reports, caused Yelp’s stock value to drop.  The district court dismissed with prejudice plaintiffs’ amended complaint, finding that plaintiffs failed to sufficiently allege material false statements, loss causation, and scienter.  The Ninth Circuit affirmed the district court’s decision, concluding that plaintiffs failed to adequately allege loss causation and scienter and holding that the amended complaint fell short of the “demanding standards set for claims of federal securities law violations.”

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On October 4, 2017, United States District Judge Stephen V. Wilson of the United States District Court for the Central District of California dismissed without prejudice a putative class action against Facebook, Inc., and three of its senior executives.  Anshen v. Facebook, No. 2:17-cv-00679-SVW-AGR (C.D. Cal., Oct. 4, 2017).  Plaintiffs alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act by fraudulently inflating Facebook’s “average duration of video view” advertisement efficacy metric, leading to a decrease in expected revenue and a drop in the company’s share price when the inaccuracy of the metric was later disclosed.  The company maintained that it inadvertently had overstated this key metric by 60—80% for two years because only advertisements that were viewed for more than three seconds were included in the calculation.  The Court rejected plaintiffs’ claims, finding that plaintiffs had failed to adequately plead scienter or causation.

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On September 28, 2017, the United States Court of Appeals for the Second Circuit affirmed a judgment, entered after a bench trial by Judge Denise Cote of the United States District Court for the Southern District of New York, awarding $806 million for claims brought under Sections 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) and provisions of the D.C. and Virginia “blue sky” laws in connection with the sale of residential mortgage backed securities (“RMBS”) to the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).  Fed. Hous. Fin. Agency for Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., Inc., —F.3d—, 2017 WL 4293322 (2d Cir. 2017).  The trial court found that the RMBS prospectus supplements falsely stated that the underlying loans had been originated generally in accordance with the mortgage originators’ loan underwriting guidelines.  In a 151-page opinion, the Second Circuit affirmed Judge Cote’s legal rulings and factual findings.  Many of the issues addressed in the opinion relate specifically to RMBS and the RMBS securitization process and are beyond the scope of this summary.  Several of the Second Circuit’s key holdings regarding the interpretation and application of the Securities Act may be of broader applicability and are highlighted below, although many such holdings also appear to have been informed to some degree by the specific context of the decision.

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On September 19, 2017, Judge Andrew L. Carter, Jr. of the United States District Court for the Southern District of New York allowed a putative securities fraud class action to proceed against VEON Ltd. (“VEON”), a telecommunications company formerly known as VimpelCom, and several of its current and former executives, denying in large part the company’s motion to dismiss.  In re VEON Ltd. Sec. Litig., 15-cv-08672 (ALC) (S.D.N.Y. Sept. 19, 2017).  Plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) asserting that VEON’s failure to disclose in its SEC filings its admitted bribery scheme in Uzbekistan made the company’s statements about its growth materially misleading.  While VEON argued that plaintiffs’ claims were an impermissible attempt to enforce the Foreign Corrupt Practices Act (“FCPA”), for which there is no private right of action, the Court disagreed, holding that plaintiffs’ allegations were sufficiently distinct and sufficient to plead violations of Sections 10(b) and 20(a) of the Exchange Act.

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On September 6, 2017, Judge Fernando M. Olguin of the Central District of California granted in part and denied in part a motion by defendants to dismiss a putative securities fraud class action against Goldcorp, Inc., a gold mining company, its former CEO Charles A. Jeannes, and other current and former officers of Goldcorp.  Cowan v. Goldcorp, No. 16-CV-6391 (C.D. Cal. Sept. 6, 2017).  The complaint asserted that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by misleading investors about pollution levels at one of Goldcorp’s major mines in Mexico.  In denying in part and granting in part the motion to dismiss, the Court ruled that—with the exception of a statement by Goldcorp’s former CEO—the complaint failed to adequately allege a materially false or misleading statement, noting that the complaint relied extensively on allegations raised in a Reuters article and lacked any corroboration.
 

On September 6, 2017, Judge Andrew J. Guilford of the Central District of California denied motions to dismiss a putative securities class action asserting claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Banc of California (“Banc”) and its former CEO, Steven Sugarman.  In re Banc of Cal. Sec. Litig., No. 17-CV-118 (C.D. Cal. Sept. 6, 2017).  Based largely on a short seller report published online, the complaint alleged among other things that defendants omitted information regarding Sugarman’s alleged financial and business ties to Jason Galanis, an individual who pled guilty to criminal securities fraud in connection with other companies.  In denying the motions to dismiss, the Court shed light on how courts might evaluate claims based on blog posts, an increasingly common basis for claims in securities cases.

On August 25, 2017, Judge Lee Yeakel of the United States District Court for the Western District of Texas dismissed with prejudice a putative securities class action against Whole Foods Market, Inc. and certain of its officers.  Markman v. Whole Foods Market Inc. et al, No. 1:15-cv-681-LY (W.D. Tex. Aug 25, 2017).  Plaintiffs alleged that defendants’ knowingly or recklessly engaged in a scheme to overcharge customers by placing inaccurate food-weight labels on prepackaged foods, thereby rendering Whole Foods’ financial statements false and misleading, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).  Lead plaintiffs—the Employees’ Retirement System of the State of Hawaii—filed a second amended complaint (“SAC”) after the Court dismissed their original complaint for failure to state a claim.  The Court held that the SAC failed to adequately plead a material misrepresentation or omission, scienter, and loss causation, and denied plaintiffs’ request for leave to amend the complaint again.

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On May 1, 2017, Judge Edward Davila of the United States District Court for the Northern District of California denied a motion to dismiss a putative securities fraud class action against Finisar Corporation and certain executives, in which plaintiffs alleged that the company had falsely denied an inventory build-up of key telecom products by Finisar’s customers, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”).  In re Finisar Corp. Sec. Litig., 2017 WL 1549485 (N.D. Cal. May 1, 2017).  The Court had previously dismissed the case for failure to allege a material misrepresentation, but the United States Court of Appeals for the Ninth Circuit reversed, holding that plaintiffs had adequately alleged a false statement in that they asserted that defendants had denied knowledge of an inventory build-up by customers in the face of evidence that they knew of the issue.  On remand, the District Court found the complaint also adequately alleged scienter and loss causation. 

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On April 6, 2017, Judge Harvey Bartle III, sitting by designation in the United States District Court for the District of the Virgin Islands, dismissed a putative class action against Altisource Asset Management Corporation (“AAMC”) and certain of its former directors and officers under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  City of Cambridge Ret. Sys. v. Altisource Asset Mgmt. Corp., No. 1:15-cv-00004, slip op. (D.V.I. Apr. 6, 2017), ECF No. 74.  Plaintiffs alleged that AAMC—a provider of asset management and corporate governance advising services related to mortgage servicing—made material misstatements in SEC filings and other disclosures relating to services it provided to the mortgage servicing company Ocwen Financial Corporation (“Ocwen”) and certain related companies.  The Court held that plaintiffs’ allegations were insufficient to demonstrate that the alleged misstatements were false or misleading, and further that plaintiffs failed to show that their claimed losses were caused by the alleged misstatements at issue. 

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On March 3, 2017, the First Department of the Appellate Division of New York Supreme Court reversed a lower court’s ruling and ordered summary judgment to be entered in favor of the defendant, TCW Asset Management Company (“TCW”), because plaintiffs failed to meet their burden of showing loss causation.  Basis Pac-Rim Opportunity Fund (Master) v. TCW Asset Management Co., No. 654033/12 (N.Y. App. Div. Mar. 3, 2017).  Plaintiffs asserted fraud claims against TCW alleging that it misled investors about the quality of the securities backing the collateralized debt obligation (“CDO”) at issue.  In reversing the trial court’s decision denying TCW’s motion for summary judgment, the First Department concluded that plaintiffs failed to produce any evidence demonstrating that “it was TCW’s misrepresentations, rather than market forces, which caused the investment losses.”

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On March 6, 2017, Judge Robert Sweet of the United States District Court for the Southern District of New York dismissed a putative class action against 6D Global Technologies, Inc. (“6D” or the “Company”) and certain of its officers and directors.  Puddu v. 6D Glob. Techs., Inc., No. 15-cv-8061 (RWS) (S.D.N.Y. Mar. 6, 2017).  Plaintiffs—purported shareholders of 6D—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 when they failed to disclose the Company’s association with an individual whom United States regulators have charged in connection with stock manipulation schemes.  The decision illustrates the challenges plaintiffs face when making claims based on alleged omissions because often there is no duty to disclose the omitted information.   

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On February 17, 2017, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a putative securities class action brought against DreamWorks Animation SKG Inc. (“DreamWorks”), its CEO and CFO.  Roofers Local No. 149 Pension Fund v. DreamWorks Animation SKG, Inc., et al., No. 15-55945, 2017 WL 655789 (9th Cir Feb. 17, 2017).  Plaintiff had alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Securities and Exchange Commission Rule 10b-5 promulgated thereunder, along with Section 20(a) of the Exchange Act, by knowingly making false or misleading statements regarding the profitability of DreamWorks’ animated movie “Turbo” during announcements of second- and third-quarter results in 2013.  The Court affirmed the dismissal of the claims, holding that plaintiff failed to adequately allege a false or misleading statement or loss causation, underscoring that complaints filed in response to poorer-than-expected results and/or the mere announcement of a regulatory investigation are not likely to succeed.

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On October 11, 2016, Vivendi, S.A. moved for panel rehearing and rehearing en banc before the United States Court of Appeals for the Second Circuit following its September 27, 2016, decision affirming a jury verdict and judgment for shareholder plaintiffs in a securities class action suit.  Petition for Rehearing En Banc, In re Vivendi, S.A. Sec. Litig., No. 15-180 (2d Cir. filed Oct. 11, 2016); Second Circuit Affirms Judgment Following Rare Jury Trial In Securities Class Action, Shearman & Sterling LLP Need-To-Know Litigation Weekly (Oct. 3, 2016).

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On September 27, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the judgment for shareholder plaintiffs in a securities class action suit against Vivendi Universal, S.A. (“Vivendi”), following a lengthy jury trial, which found Vivendi liable for securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934.  In re Vivendi, S.A. Securities Litigation, No. 15-180-cv(L), 15-208-cv (XAP), 2016 WL 5389288 (2d Cir. Sept. 27, 2016).  Plaintiffs were a class of investors who purchased Vivendi common stock between 2000 and 2002.  In affirming, the Court found sufficient evidence in the record to support the jury’s conclusion that Vivendi materially misstated its liquidity risk in a manner that either inflated or maintained Vivendi’s stock price, and that the revelation of the truth about Vivendi’s liquidity risk caused a drop in Vivendi’s share price.  The case is significant for a number of reasons, including the affirmance of a verdict arising out of a rare securities class action trial, and its analysis of loss causation and the controversial “price maintenance” theory of loss causation.

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On September 2, 2016, Judge William Orrick of the Northern District of California dismissed with prejudice a putative class action against Cellular Biomedicine Group, Inc. (“CBMG”) alleging securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934.  Bonanno v. Cellular Biomedicine Group, Inc., No. 15-CV-01795-WHO, 2016 WL 4585753 (N.D. Cal. Sept. 2, 2016).  The Court held that plaintiffs failed to plead with particularity that a blog post compiling publicly available information about CBMG’s efforts to promote its stock was a corrective disclosure causing CBMG’s share price to drop, even in light of the allegation that the information was far-flung or effectively “hidden” or impossible for a lay person to compile. 

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On July 20, 2016, the U.S. Court of Appeals for the Sixth Circuit revived a putative class action against Federal Home Loan Mortgage Corporation (“Freddie Mac”).  Ohio Public Employees Retirement Sys. v. Federal Home Loan Mortgage Corp., et al., No. 14-4189, 2016 WL 3916011 (6th Cir. Jul. 20, 2016).  In reversing the U.S. District Court for the Northern District of Ohio, the Court found that plaintiff’s allegations regarding loss causation were sufficient to sustain a claim against Freddie Mac under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) for making materially false and misleading statements and omissions concerning its financial health.  

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On July 1, 2016, Judge William Pauley III of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative class action concerning Virtus Investment Partners, the parent of an investment advisory company that managed and provided advice to mutual funds.  See Youngers v. Virtus Inv. Partners Inc., No. 15-cv-8262 (S.D.N.Y. July 1, 2016).  Plaintiffs purported to assert claims under Section 10(b) of the Securities Exchange Act of 1934 and Sections 11 and 12(a)(2) of the
Securities Act of 1933, on behalf of investors who purchased shares in certain Virtus mutual funds between May 8, 2010 and December 22, 2014.  Plaintiffs’ allegations concerned statements in the funds’ registration statement that the above-market performance of the funds using a particular investment strategy (the “AlphaSector” strategy) was calculated based on live trading since 2001.  Plaintiffs alleged that the pre-2008 returns were actually generated using only back-testing, as the algorithm was not developed until 2008.  

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