The number of federal court securities class action lawsuit filings increased in 2024 for the second year in a row, to the highest level since 2020. The increased number of federal court securities suit filings during the past year is due to several factors, including continuing filings relating to ongoing trends such as new lawsuit filings relating to SPACs, COVID-related suits, and cryptocurrencies, as discussed further below.

Continue Reading Federal Court Securities Class Action Lawsuit Filings Increased in 2024

We live in a time of significant geopolitical risk, from the highly volatile conditions in the Middle East, to the ongoing war in Ukraine, to continuing tensions in the South China Sea, among many other concerns. These risks of course have important ramifications, including among many other things as a source of potential D&O liability exposure. In prior posts (most recently here), I have highlighted ways that geopolitical issues, such as, for example, trade sanctions, can translate into corporate and securities litigation. In the latest example of this phenomenon, on December 19, 2024, a plaintiff securityholder filed a securities class action lawsuit against Joint Stock Company Kaspi.kz, a Kazakh company whose American Depositary Shares (ADS) trade on Nasdaq. Among other things, the plaintiff alleges that the company misrepresented the extent to which its bank subsidiary was being used for unlawful purposes, including assisting Russians with evading sanctions in the wake of the 2022 Russian invasion of Ukraine. A copy of the December 19, 2024 complaint in the case can be found here.

Continue Reading Geopolitical Risk, Trade Sanctions, and D&O Risk Exposure

The March 2023 collapse of Silicon Valley Bank (SVB) is long enough ago that it in many ways seems like ancient history. The fact is that the bank’s failure was the second largest in U.S. history, and its collapse continues to cast a shadow over the U.S. banking industry. Private civil litigation against company executives, on behalf of investors and others, followed immediately in the wake of the bank’s collapse, but at least until now the post-collapse lawsuits have not included an action by the FDIC, as often follows after a bank failure. However, as discussed below, on December 17, 2024, the FDIC’s Board of Directors voted unanimously to authorize the agency staff’s request for authorization to file a suit against six former officers and 11 former directors of SVB and its holding company, SVB Financial Group.

Continue Reading FDIC Board of Directors Authorizes Suit Against SVB Officials
Liz Dunshee
Nessim Mezrahi

U.S. listed companies must comply with the SEC’s periodic disclosure requirements. The problem for reporting companies is that company disclosures and omissions can become the basis of liability claims and governmental investigations. In the following guest post, Liz Dunshee and Nessim Mezrahi consider the ways that companies can use data analytics to guide their disclosure decisions. Liz is a shareholder at the Fredrikson & Byron law firm and Nessim is co-founder and CEO at SAR LLC. A version of this article previously was published on Law360. I would like to thank Liz and Nessim for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Liz and Nessim’s article.

Continue Reading Guest Post: Using Data to Inform Corporate Disclosure Decisions

The onset of COVID-related securities class action litigation since the initial outbreak of the coronavirus in the U.S. in March 2020 is something that I have fully documented on this site (most recently, for example, here). Even though the coronavirus-outbreak peaked long ago and even though the relevant U.S. agencies officially declared an end to the pandemic health emergency on May 11, 2023, the pandemic’s impact on the U.S. economy continues to reverberate. And the economic disruption the pandemic caused among other things continues to result in securities class action lawsuit filings, even at this late date after the pandemic ended. The latest example of this phenomenon is the lawsuit filed this week against alcoholic beverage company MGP Ingredients, whose fortunes soared during the lockdown but tailed off more recently as the company acknowledged the impact on its sales from pandemic-induced overstocking. A copy of the December 16, 2024, complaint against the company can be found here.

Continue Reading Beverage Company Hit with COVID-Related Securities Suit

As I noted last week, President-Elect Donald Trump has indicated his intent to name former SEC Commissioner Paul Atkins as SEC Chair in the upcoming new administration. Atkins’s appointment, as I noted in last week’s post, could mean significant changes to the agency’s regulatory approach and enforcement priorities. Observers and commentators have continued to weigh in on the potential implications of Atkins’s appointment, and, as discussed below, academic commentators have tried to emphasize the importance of monitoring the agency closely under the new administration to ensure that it continues to be able to fulfill its traditional mission.

Continue Reading More About the SEC Under the Incoming Presidential Administration

On December 11, 2024, the Fifth Circuit, sitting en banc, and by a vote of 9-8, struck down Nasdaq’s board diversity rules. The full Court’s decision overrules an earlier ruling of a three-judge panel that had upheld the Nasdaq rules.  The en banc panel held that the SEC exceeded its authority when it approved the rules. The court’s ruling, which can be found here, represents the latest blow against corporate DEI initiatives.

Continue Reading Fifth Circuit Strikes Down Nasdaq Board Diversity Rules

At the outset of the current U.S. Supreme Court term, corporate and securities law observers and commentators were excited that the Court had agreed to take up two securities law cases that had significant potential to provide insights about securities lawsuit pleading standards and processes. However, as noted here, in November, the court dismissed the Facebook Cambridge Analytica case, one of the two cases the Court was to take up this term. Now, in a terse, one-line December 11, 2024, order, the Court dismissed the Nvidia case, the second of the two cases it had agreed to take up, meaning that instead of addressing two securities law cases this term, it will now not consider any securities cases. A copy of the Court’s December 11, 2024, order can be found here.

Background

Nvidia made GPUs intended for gaming applications. In or about 2017, cryptocurrency companies began using its GPUs for crypto mining operations. Sales of its GPUs reached record levels in 2017 and most of 2018 and the company told investors it was working hard to meet demand. However, when the company learned of excess supply of certain of its GPUs in certain distribution channels, it disclosed the excess supply of the GPUs, its share price declined, and plaintiff shareholders filed securities class action lawsuits against the company and certain of its directors and officers.

In their complaint, the plaintiff shareholders alleged that Jensen Huang, the company’s CEO, knowingly understated the extent to which demand for certain of the company’s GPUs was being driven by cryptocurrency miners (as opposed to demand from gamers). In their complaint, the plaintiffs did not, for example, cite internal documents reflecting GPU demand by crypto miners as opposed to gamers; rather, plaintiffs relied on an expert witness to analyze public data about activities of the crypto mining companies, using assumptions about the amount of computing power needed to facilitate the disclosed activities, and from that estimating the number of GPUs needed for the activity and what percentage of those GPUs would have been NVIDIA’s. From this “chain of assumptions,” the expert purported to determine what percentage of NVIDIA’s revenue was derived from crypto miners, the basis on which the plaintiffs alleged that the company’s actual dependence on crypto miners differed from the company’s disclosures. 

The District Court granted the defendants motion to dismiss. However, the Ninth Circuit, in a split opinion, written over the dissent of Judge Gabriel Sanchez affirmed in part and reversed in part the lower court’s dismissal.

NVIDIA filed a petition for a writ of certiorari to the U.S. Supreme Court. In their petition, NVIDIA said that the case presents two questions:

1. Whether plaintiffs seeking to allege scienter under the PSLRA based on allegations about internal company documents must plead with particularity the contents of those documents.

2. Whether plaintiffs can satisfy the PSLRA’s falsity requirement by relying on an expert opinion to substitute for particularized allegations of fact.

In a June 17, 2024, order, the Court granted the company’s petition for a writ of certiorari. The case, which was docketed for the current U.S. Supreme Court term, had been fully briefed, and indeed, on November 13, 2024, the Court heard oral argument. According to press reports of the argument, the Court seemed very skeptical, and several individual justices seemingly were questioning why the case was before the court. Indeed, as reported here, Justice Elena Kegan said, with respect to the Nvidia case, that “it becomes less and less clear why we took this case” rather than simply allowing the Ninth Circuit’s decision to stand.

Then on December 11, 2024, the U.S. Supreme Court entered an order dismissing the case on the grounds that the writ of certiorari was improvidently granted. As usual when this happens, the Court provided no explanation for the dismissal. A dismissal on these grounds means that the Court has decided that it should not have agreed to review the case. A dismissal of this type typically occurs when the Court realizes, upon further examination, that the case does not meet the criteria for Supreme Court review or that there was some procedural or substantive issue that makes the case unsuitable for their consideration. (More background on a dismissal on this ground can be found here.)

Discussion

The practical effect of the Supreme Court’s dismissal is that the Ninth Circuit’s ruling in the case will stand, meaning that the appellate court’s overturning of part of the district court’s dismissal of the case is operative, and the portion of the case that the Ninth Circuit revived by overturning the district court’s dismissal will now go back to the district court for further proceedings.

The Supreme Court’s dismissal of the case also means that the Court now will not weigh in on the interesting and important issues that the case presented. The question of what a plaintiff relying on internal documents in support of a securities law claim must plead is a recurring one. The question of the extent to which a plaintiff can rely on expert witness testimony to support the sufficiency of a securities law claim also is recurring. The lower courts must now deal with these questions without Supreme Court guidance on the issue, and in that regard must deal with the split in the circuit on these issues that Nvidia has cited in support of its petition for the writ of certiorari.

The split in the circuits, usually of such significant concern to the Supreme Court, is a particularly noteworthy concern with respect to these questions; Nvidia had argued in its petition for the writ that the positions of the Second and Ninth Circuits on these issues diverge, meaning that, with diverging positions in the two Circuits with the greatest volume of securities litigation activity, resulting in potentially diverging case outcomes.

Based on the media reports of oral arguments in this case, it appears that the Court was skeptical of the pleading standard for which Nvidia argued, expressing concern that requirements that Nvidia urged could raise impossible barriers for claimants at the pleading stage. Some justices also questioned how the expert witness’s report could be questioned at the motion to dismiss stage of the proceedings.

In any event, it is now the case that in a Supreme Court term in which it looked as if the Court would be weighing in on the pleading standards in securities suits in two different cases, the Court will now not be saying anything on U.S. securities law issues this term. You would also think that the court might be more restrained in agreeing to take up further securities law cases, at least in the near term.

Kind of feels like showing up for a wedding ceremony, with everyone all dressed up and the witnesses gathered and the music playing, and instead of nuptials, the guests are treated to an abrupt and unexpected announcement that the wedding has been cancelled.

As I have documented on this site, conservative advocacy and legal groups have been pursuing an aggressive ESG backlash campaign. Among other things, these groups’ efforts have caused several high-profile companies to walk back their DEI initiatives. These groups have also pushed for state-level anti-ESG legislation and have also even pursued anti-ESG litigation. The litigation results have been mixed at best, as noted for example here. However, in the ESG-backlash securities lawsuit filed by a conservative advocacy group against Target in the wake of a consumer boycott following the company’s LGBT “Pride Month” campaign, a federal district court has denied the defendants’ motion to dismiss. As discussed below, there are several interesting features of the court’s ruling. A copy of the Court’s December 4, 2024, opinion can be found here.

Continue Reading ESG Backlash Securities Suit Against Target Survives Dismissal Motion

As D&O insurance professionals try to assess the potential impact on the industry from Donald Trump’s return to the White House next month, one area of focus has been on the Trump’s appointment powers. This includes, obviously, the President’s authority to appoint judges to the federal judiciary, but in addition involves his power to make appointments to the Presidential cabinet and to the federal agencies. As Trump’s appointments have unfolded over the last few weeks, none looms larger (for now at least) for the D&O arena than the announcement last Wednesday that Trump will nominate former SEC Commissioner Paul Atkins as SEC Chair. This appointment, if confirmed, could result in a significant change of direction at the SEC, which in turn could have important implications for the world of D&O.

Continue Reading Trump Selects “Anti-Gensler” for SEC Chair