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Last week, the Fifth Circuit reversed a decision from the United States District Court for the Northern District of Texas that had dismissed a class action against Six Flags Entertainment Corporation.  The complaint in Oklahoma Firefighters Pension and Retirement System v. Six Flags Entertainment Corp., et al., alleged Six Flags and its former CEO and CFO violated federal securities laws in connection with statements regarding the construction of new theme parks in China.  In overturning the lower court’s decision, the Fifth Circuit provided important guidance regarding the weight of confidential witness allegations in securities class actions, as well as evaluating legal doctrines on forward-looking statements, puffery, and scienter. 

The SEC spread its reach to Hollywood this month – on October 3, 2022, the SEC announced charges against Kim Kardashian for her social media promotions of EMAX, a digital token issued by EthereumMax. The SEC found that Kardashian violated the anti-touting provision of the federal securities laws by failing to disclose the $250,000 payment she received for the ad.

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 “pull forward” practices, it also was the basis on which a U.S. District Court permitted similar (but not identical) shareholder claims against Under Armour to proceed.

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 securities fraud class action against a major cruise operator six weeks earlier by the same court.

Like in the prior case against Norwegian, the Carnival court dismissed the suit upon finding the plaintiffs failed to plead the existence of any statements that were materially false or misleading, and failed to sufficiently allege scienter.  In so doing, it applied traditional principles of federal securities laws to the anything-but-traditional circumstances created by the COVID-19 pandemic.

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 that meant for the business. The SEC charged Under Armour with violations of “antifraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933, as well as certain reporting provisions of the federal securities laws.”

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 the plaintiff failed to plead actionable misstatements or omissions and scienter for a claim of securities fraud under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder.

Thanks to the court’s thorough analysis, this decision serves as a useful overview to those wishing to cruise through the sea of corporate puffery, forward-looking statements, and scienter in the federal securities laws.

Thanks to HBO’s documentary, “The Inventor: Out for Blood in Silicon Valley,” and a barrage of media coverage about Elizabeth Holmes and her defunct company, Theranos, it is unmistakable that big misrepresentations can lie in public statements regarding miniscule quantities of blood.

This lesson proved true again last month, when the CEO of Decision Diagnostics, a pharmaceutical testing company, widely publicized that the company could accurately test for COVID-19, providing near-instant results with only a finger-prick of blood. In one press release, the CEO, Keith Berman, went so far as to say the COVID-19 testing would be “commercial ready” by summer of 2020.  The market took note, and the company’s stock soared (by a whopping 1,200%) following Berman’s statements.