Corporate Defense and Disputes

Important developments in U.S. securities law, white collar criminal defense, regulatory enforcement and other emerging issues impacting financial services institutions, publicly traded companies and private investment funds

Category Archives: Securities Litigation

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Ninth Circuit Upholds Delaware-Forum Bylaw That Precludes Assertion of Federal Proxy Claim

The Court of Appeals for the Ninth Circuit affirmed the dismissal of a shareholder derivative action in light of an exclusive-forum bylaw requiring assertion of derivative claims in the Delaware Court of Chancery, even though the case included a federal claim that was subject to exclusive federal jurisdiction and could not have been litigated in … Continue Reading

SEC Proposes Extensive New Rules Applicable to SPACs and de-SPAC Transactions

This week, our corporate colleagues published a handy guide to the SEC’s new proposed rules on SPACs. Of particular note to securities watchers should be potential increases in litigation stemming from changes to the definition of “blank check company” for the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). The SEC has long given … Continue Reading

Securities Litigation: An Emerging Strategy to Hold Companies Accountable for Privacy Protections

A California federal judge rejected Zoom Video Communications, Inc.’s motion to dismiss securities fraud claims against it, and its CEO and CFO, for misrepresenting Zoom’s privacy protections. Although there have been a number of cases challenging inadequate privacy protections on consumer protection grounds in recent years, this decision shifts the spotlight to an additional front … Continue Reading

SEC Says Remedy Stops Penalty: HeadSpin Avoids Fine in SEC Fraud Action

On January 28, 2022, the Securities and Exchange Commission filed a complaint in the U.S. District Court for the Northern District of California against HeadSpin, Inc., a Silicon Valley start-up. In the complaint, the SEC alleged that HeadSpin, though its then-CEO Manish Lachwani, engaged in a fraudulent scheme “to propel its valuation to over $1 … Continue Reading

Key Takeaways from Recent Court Rulings on Corporate Board Oversight

Corporate boards are subject to a duty of oversight, as part of their duty of loyalty to their company. As outlined by Delaware’s famously stringent Caremark standard, pleading a violation of that duty is often difficult. However, the Delaware Court of Chancery has issued several recent opinions addressing duty of oversight claims where they held the … Continue Reading

California Federal Court Holds U.S. Securities Laws Inapplicable to Unsponsored, Unlisted ADR Transaction Preceded by Purchase of Common Stock Outside the U.S.

The U.S. District Court for the Central District of California held on January 7, 2022 that the federal securities laws do not apply to U.S. transactions in unlisted, unsponsored American Depositary Receipts (“ADRs”) for a foreign issuer’s shares where the ADR purchases depended on prior purchases of the underlying common stock on a foreign exchange.  … Continue Reading

SEC Brings First Enforcement Action Against Alternative Data Provider

The Securities and Exchange Commission (“SEC”) filed a settled securities fraud action against App Annie Inc., one of the largest sellers of market data on how apps on mobile devices are performing, and its co-founder and former CEO and Chairman Bertrand Schmitt.  The settlement is the first enforcement action brought by the SEC against an … Continue Reading

Second Circuit Holds that Accurately Reported Financial Statements Are Not Actionable and that Materiality Has a Half-Life

The U.S. Court of Appeals for the Second Circuit held earlier this week that a company’s accurately reported financial statements are not misleading simply because they do not disclose that alleged misconduct might have contributed to the company’s financial results. The court also ruled that alleged misstatements made three to four years before the plaintiffs … Continue Reading

MNPI Update: SEC Pursues “Shadow Trading” Insider Trading Case

The SEC recently charged a former employee of a biopharmaceutical company with insider trading in advance of an acquisition but with a unique twist: Trading the securities of a company unrelated to the merger. The employee, Matthew Panuwat, did not trade his own company’s or the acquiring company’s securities, but instead purchased stock options for … Continue Reading

Supreme Court to Decide Whether Discovery Stays Apply to State-Court Securities Lawsuits This Fall

One of the most significant differences between bringing a securities lawsuit in state versus federal court is the application of the mandatory discovery stay set forth in the Private Securities Litigation Reform Act (the “PSLRA”).  Following the enactment of the PSLRA in 1995, federal courts must stay discovery in securities-law cases until after a complaint … Continue Reading

A New Strain of COVID-19 Shareholder Suit

While we are growing accustomed to pandemic-based shareholder actions relating to improper health and safety disclosures or misrepresentations relating to COVID-19 treatments and tests, this month brings a novel variant of the COVID-19 lawsuit. A Universal Health Services Inc. investor has filed a derivative suit against company officers and directors, claiming they took advantage of … Continue Reading

District Court Takes Judicial Notice of SEC Order in Denying Motion to Dismiss Shareholder Claims

In our previous post, Under Armour Inc. Pulls Sales Forward, SEC and Stockholders Push Back, we discussed Under Armour Inc.’s recent settlement with the SEC, under which Under Armour agreed to pay $9 million for alleged violations of federal securities laws. While that settlement marked the end of a two year investigation into Under Armour’s … Continue Reading

Smooth Sailing: Another Securities Class Action Against a Cruise Line Dismissed

On May 27, 2021, the United States District Court for the Southern District of Florida dismissed a securities class action against Carnival Corp. (“Carnival”), which operates the world’s largest cruise company, relating to the company’s health and safety disclosures made prior to and as the COVID-19 pandemic spread.  This decision follows a dismissal of another … Continue Reading

CytoDyn Faces Continued Shareholder Pressure

The spate of shareholder actions against biotech companies relating to COVID-19 treatments shows no signs of stopping, and now, derivative lawsuits are following the initial wave of securities class actions.  For example, late last week, a shareholder of CytoDyn, Inc., brought a derivative action against certain officers and directors of the company.  CytoDyn is a … Continue Reading

All-Seeing Bylaws Help Block Diversity Suit

The rash of shareholder derivative actions alleging violations of fiduciary duties tied to companies’ diversity measures are continuing to take a beating in the Northern District of California.  We previously posted about the dismissal on forum selection clause grounds of a derivative action brought in that court by a shareholder of The Gap, Inc. alleging … Continue Reading

Under Armour Inc. Pulls Sales Forward, SEC and Stockholders Push Back

As the culmination of an SEC investigation into Under Armour Inc.’s “pull forward” practice leads to charges, Under Armour agrees to cease and desist and settles for $9 million. Following an investigation dating back to 2015, the SEC claimed Under Armour misled investors by not disclosing the reason for its growth in revenue and what … Continue Reading

First Circuit Adopts Prevailing Standard for Applicability of Federal Securities Laws to Foreign Investors, But Rejects Second Circuit’s Narrower Test

The U.S. Court of Appeals for the First Circuit held yesterday that the U.S. securities laws apply to foreign brokers’ solicitations of securities purchases by foreign investors if the purchasers or sellers incurred irrevocable liability within the United States to pay for or deliver the securities. The decision in SEC v. Morrone follows the “irrevocable … Continue Reading

Failure to Cruise Past the Pleading Requirements in the Norwegian Cruise Lines Securities Class Action

On April 10, 2021, the United States District Court for the Southern District of Florida dismissed a securities class action complaint against Norwegian Cruise Lines (“NCL”) relating to the company’s disclosures made as the coronavirus pandemic was starting to unfold in the United States. In Douglas v. Norwegian Cruise Lines, et al., the court found … Continue Reading

Another Diversity Suit Tossed on Forum Selection Grounds

This week, another shareholder derivative suit was dismissed based on a forum selection clause contained in the company’s bylaws. In November 2020, a shareholder filed a derivative action alleging that directors and officers of The Gap, Inc., an apparel company, had failed to create meaningful diversity on the Board of Directors on within the company’s … Continue Reading

Pinterest Diversity Suits Multiply

Late last month, a new batch of plaintiffs filed a stockholder derivative suit against Pinterest, Inc., in Delaware Chancery Court, making similar allegations to those made in a pair of cases filed in the Northern District of California in 2019. The plaintiffs allege that Pinterest executives ignored and failed to correct systemic race and gender … Continue Reading

A Warning to Cryptocurrency Users from the Justice Department’s Tax Division

As you might expect during tax season, the Justice Department’s press releases seem particularly focused on tax-related issues these days.  At the start of this month, DOJ sent a stern reminder to the public that non-traditional currency users should not expect to escape federal tax law enforcement. On April 1, the district court for the … Continue Reading
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