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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SEC Eyes Further Crypto Regulation as Concerns over Conflicts of Interest Loom

SEC Chair Gary Gensler appears to be readying the SEC for increasing oversight of cryptocurrency exchanges, the latest in a series of regulatory actions targeting the growing industry. In prepared remarks at PLI’s recent SEC Speaks conference, Gensler called on cryptocurrency platforms to register each function they perform with the SEC – for example, requiring … Continue Reading

Cryptic Guidance? Despite Regulatory Ambiguity, New SEC Enforcement Could Drive Increase in Cryptocurrency-Related Shareholder Class Actions   

In late-July, the U.S. Securities and Exchange Commission brought insider trading charges against a former manager at Coinbase—the largest crypto asset trading platform in the United States. The charges are the latest move in the agency’s efforts to regulate cryptocurrency, and could spur an increase in cryptocurrency-related securities litigation.… Continue Reading

Blockchain Meets Morrison: Court Rejects Blockchain Class Settlement Because of Concerns About Adequacy of Representation

The U.S. District Court for the Southern District of New York recently rejected a proposed settlement of a securities class action involving purchasers of digital tokens due to concerns about whether the lead plaintiff had adequately represented the class for settlement purposes.  Judge Lewis A. Kaplan held in Williams v. Block.one that the federal securities laws … Continue Reading

Dis-Honest: Judge Allows Lawsuit against Jessica Alba Company to Move Forward

A judge in the United States District Court for the Central District of California has allowed a lawsuit against actress Jessica Alba’s child and personal care company Honest to move forward. The case is the latest in a series of investor-led actions against companies that shareholders claim have used COVID-19 and associated disruptions to mislead … Continue Reading

Delaware Supreme Court Allows Use of “Reliable” Hearsay to Support Books-and-Records Demand

The Delaware Supreme Court held yesterday that a stockholder seeking to inspect corporate books and records may use “reliable” hearsay to establish the propriety of the purpose of the inspection demand. The decision in NVIDIA Corp. v. City of Westland Police and Fire Retirement System (July 19, 2022) does not appear to break new ground on … Continue Reading

Divided Delaware Supreme Court Decision Highlights Issues About Director Independence in Derivative Actions

The Delaware Supreme Court recently affirmed a Court of Chancery ruling granting a Special Litigation Committee’s motion to terminate a shareholder derivative action that had survived a motion to dismiss. The split decision in El Pollo Loco (June 28, 2022) highlights whether a director can be considered independent – especially as a member of a Special … Continue Reading

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
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