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Sixth Circuit Affirms Dismissal Of Securities Class Action Against Financial Services Company’s Spinoff Loyalty Program
02/03/2026On January 21, 2026, the United States Court of Appeals for the Sixth Circuit affirmed dismissal by the United States District Court for the Southern District of Ohio of a putative securities class action against a financial services company (the “Company”) and three of its officers (collectively, the “Defendants”). Newtyn Partners, LP v. Alliance Data Sys. Corp., No. 25-3313 (6th Cir. Jan. 21, 2026). Plaintiff alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5(b), as well as claims of scheme liability pursuant to Rules 10b-5(a) and (c). Specifically, Plaintiff alleged that Defendants misled investors by projecting a “stable client base” and “deep, long-standing relationships” for its loyalty rewards program, which the Company spun off (the “Loyalty Program”), even as sponsors indicated or were at risk of indicating their intent to terminate their sponsorships. The Court’s decision, which affirmed the district court’s dismissal, confirmed the Sixth Circuit’s holdings that generalized statements by a company cannot be labelled half-truths simply because the company does not also disclose specific, potentially contrary information and that risk disclosures are inherently forward looking and thus do not convey information about current conditions.
The Company spun off the Loyalty Program in 2021. Plaintiff alleged that Defendants made misleading statements during the spinoff regarding the Loyalty Program’s client base despite the risk of allegedly significant client departures. The crux of Plaintiff’s claim was that Defendants’ statements about the Loyalty Program’s “stable client base” and “deep, long-standing relationships” were “half-truths” because they omitted key context about clients who were considering terminating partnerships. The Company’s risk disclosures also allegedly stated that the loss of any of the Loyalty Program’s top ten clients would have a significant impact on revenue, which Plaintiff contended was misleading because it implied that the risk was a possibility when it already had materialized.
The Court did not agree that Defendants’ statements were misleading half-truths, noting that a statement cannot be a misleading half-truth when “the words spoken and the facts omitted operate on different levels of generality” and “that the omitted facts must have a reasonably close fit to what defendants disclosed.” Here, Defendants made generic statements about a stable client base which the Court described as loosely optimistic, high-level remarks that would not have created inferences regarding specific contractual relationships for reasonable investors. These general optimistic statements did not require Defendants to disclose the specific contractual terms with clients who were at risk of terminating their partnerships and, therefore, the upbeat statements were not misleading half-truths.
The Court also rejected Plaintiff’s argument that the Company’s risk disclosures were misleading, noting that risk disclosures are inherently forward-looking and do not communicate anything about current conditions: cautionary statements that a loss “could” occur do not imply that losses have not yet occurred. Applying these principles, the Court found statements about the Loyalty Program’s stable client base and its deep, long-standing relationships were either accurate historical facts or nonactionable puffery, especially when read alongside cautionary language about competition, finite contract terms, and potential sponsor attrition.
The Court then noted that, even if Plaintiff adequately pled falsity, it did not adequately plead scienter. The Court found competing, innocent inferences—such as that negotiations with sponsors remained ongoing and that sponsors had not yet determined to leave—more cogent and compelling than an inference of intent to defraud. In reaching these conclusions, the Court held that allegations Plaintiff drew from a complaint in a separate action should not “significantly contribute” to the analysis because they were not based on Plaintiff’s personal knowledge. The Court also found that Plaintiff’s allegations that Defendants had financial incentives to defraud investors were not compelling because, among other things, the Company would continue to hold 19% of the spinoff.
Finally, because Plaintiff failed to plead a primary 10b-5(b) violation or scienter, its “scheme liability” theory under Rules 10b-5(a) and (c) also failed, as did its Section 20(a) control-person claim for lack of an underlying violation. The Court therefore affirmed the district court’s dismissal in full.
