Joseph Gross

Earlier this week, the U.S. Supreme Court heard oral argument in the Slack case, the  high-profile securities law case the Court is considering this term. In the following guest post, Joseph Gross of the Wiley firm provides a detailed overview of the legal issues in the case and summarizes the parties’ oral arguments. I would like to thank Joe for allowing me to publish his 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 Joe’s article.

Continue Reading Guest Post: Will the Supreme Court Cut Securities Plaintiffs Some Slack? 

As I noted in my year-end round up of D&O related issues (here), plaintiffs’ lawyers have continued to file securities class action lawsuits following cybersecurity incidents, even though the plaintiffs’ track record in these kinds of lawsuits generally has been poor. Among the cybersecurity-related securities lawsuits filed last year was the suit against cloud-based software company Okta relating in part to the cybersecurity incident at the company earlier in the year. Consistent with the general trend, on March 31, 2023, the court presiding over the Okta securities lawsuit granted the defendants’ motion to dismiss the cybersecurity-related allegations, although the court denied the dismissal motion with respect to certain of the plaintiffs’ other unrelated allegations. The court granted the plaintiff leave to amend the dismissed allegations. The court’s March 31, 2023, order can be found here.

Continue Reading Cybersecurity-Related Securities Suit Allegations Against Okta Dismissed

When the SEC established a Climate and ESG Task Force in March 2021, the agency said that the group would “develop initiatives to proactively identify ESG-related misconduct.” Since that time the Task Force has indeed filed enforcement actions alleging ESG-related misrepresentations. Now the agency has reached a settlement with the Brazil-based mining company Vale, S.A. of the Task Force’s first-filed enforcement action, in connection with alleged misrepresentations in the company’s sustainability report about the safety of the company’s mining dams. In the settlement, the company agreed to pay a total of $55.9 million. The enforcement action and its settlement signify the agency’s increasing focus on ESG-related disclosure and its willingness to pursue enforcement actions using existing procedural mechanisms. A copy of the SEC’s March 28, 2023, press release about the Vale settlement can be found here.

Continue Reading Mining Company Settles SEC’s ESG Task Force’s First-Ever Enforcement Action

              

In the current economic environment, companies are wrestling with a host of macroeconomic issues, including rising interest rates, economic inflation, continuing labor shortages, and the war in Ukraine. In addition, another issue companies are facing in the wake of the pandemic is supply chain disruption, which continues to challenge some companies. In the latest sign of ways in which these macro factors can translate into securities litigation, earlier this week the fuel cell company Plug Power was hit with a securities class action lawsuit after its share price declined following the company’s announcement of disappointing financial results driven in part by supply chain issues. A copy of the April 12, 2023, complaint filed against Plug Power can be found here.

Background

Plug Power is a hydrogen fuel cell company that develops power systems for use in electric vehicles. In August 2022, when releasing its 2Q22 financial results, the company emphasized its “strong business outlook” as well as the strength of its supply chain, noting that the company did “not foresee supply chain issues this year.”

However, in October 2022, the company forewarned that its 2022 revenues could be as much as 10% below prior projections, as some projects previously scheduled for 2022 completion were now slated for 2023 completion. The company’s share price declined 6% on this news.

On January 25, 2023, despite what the complaint characterized as “previous assurances that revenue growth would be at least 60% on a year-over -year basis,” the company “revealed” that it now expected to generate revenue growth of just 45% to 50% for 2022. The company’s CEO explained that “new products came out a little slower than we hoped” and manufacturing issues “added complexity to supply chain.” The company’s share price declined another 6% on this news.

On March 1, 2023, when the company release its financial results for the fourth quarter and full year 2022, the company announced revenue growth of just over 40%, “missing even the reduce guidance range” provided just weeks earlier. The company’s share price declined another 6% on the news.

The Lawsuit

On April 12, 2023, a plaintiff shareholder filed a securities class action lawsuit in the District of Delaware against Plug Power and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased securities of Plug Power between August 9, 2022, and March 1, 2023.

The complaint alleges that during the class period, the defendants misrepresented or failed to disclose that the Company “was unable to effectively manage its supply chain and product manufacturing, resulting in reduced revenues and margins, increased inventory levels, and several large deals being delayed until at least 2023, among other issues.” As a result, the complaint alleges, “Defendants statements about the Company’s business, operations, prospects, and ability to effectively manage its supply chain and production lacked a reasonable basis.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.

Discussion

One of the consequences from the pandemic outbreak was a huge disruption in the global supply chain. Although the Wall Street Journal reported earlier this year that supply chain issues have largely resolved for many companies and many industries, supply chain issues continue to affect many companies, and it appears that in late 2022, supply chain issues disrupted this company’s operations.

As I noted at the outset, supply chain issues are only one of several macroeconomic issues disrupting companies in the current business environment. In many cases, these macro challenges have translated into securities lawsuits, including challenges related to supply chain issues. For example, last month retailer Target Corp. was hit with a securities suit, after the company reported that its response to earlier supply chain issues had resulted in an inventory overhang. A similar fact-pattern previously led to a securities lawsuit against tool maker Stanley Black & Decker, involving similar allegations. In 2022, supply chain related issues led to securities suits against Tupperware (here), Torrid Holdings (here), FIGS, Inc. (here), and Cerence (here).

It is entirely possible – and indeed seems likely – that as the pandemic-caused disruption in the global supply chain continues to ease, not only will companies generally experience fewer and less severe supply chain issues, but the phenomenon of supply chain-related securities lawsuit filings should ease as well. In that regard, it is noteworthy that while Plug Power is only now being sued in April 2023, the supply chain issues that disrupted its operations appear to have taken place in the third and fourth quarters of 2022. It may be that as we move forward in time, earlier supply chain issues will have less affect on operations and are less likely to translate into securities lawsuits.

That said, other macroeconomic factors, especially interest rate increases and economic inflation, are likely to continue to create difficulties for operating companies, and may continue to translate into securities suits. The March 2023 collapse of Silicon Valley Bank and the subsequent securities litigation filings (discussed here) provide a rather stark example of the ways that interest rate issues can undermine company operations and financial results and result in securities litigation.

This new lawsuit has only just been filed and it remains to be seen how it will fare. That said, however, I think it is fair to point out that when the time comes for the sufficiency of the plaintiff’s allegations to be put to the test, the Court will have to look long and hard to find anything in this complaint responsive to the plaintiff’s allegations to present sufficient allegations of scienter.

What a world we live in where a company that produced revenue growth of “only” 40% is getting hit with a securities suit.

The number of securities class action lawsuit filings involving accounting allegations increased slightly in 2022 compared to 2021, but the number of 2022 accounting-related securities suit filings remained below the long-term annual average of such filings, according to the latest annual report from Cornerstone Research. At the same time, the total number, aggregate total value, and median and average values of accounting-related securities suit settlements increased in 2022 compared to the 2021. The Cornerstone Research report, which is entitled “Accounting Class Action Filings and Settlements: 2022 Review and Analysis,” can be found here. Cornerstone Research’s April 12, 2023, press release about the report can be found here.

Continue Reading Cornerstone Research: Accounting Related Case Filings and Settlements Increased in 2022

Among jurisdictions outside the U.S. with active securities litigation regimes, one of the most noteworthy and important is Canada. Shareholder litigation in Canadian courts and under Canadian law has been an important feature of the global investor litigation picture for several years. According to the latest annual report from NERA Economic Consulting, the number of Canadian securities class action lawsuits declined in 2022 for the second year in a row, and the number of 2022 filings was also slightly below the long-term annual average number of filings. In addition, as detailed below, the median settlement amount for settlements of Canadian securities class action lawsuits has decline in the most recent years compared to prior years. The report, which is entitled “Trends in Canadian Securities Class Actions: 2022 Update,” can be found here.

Continue Reading NERA: Canadian Securities Class Action Lawsuit Filings, Settlements Declined in 2022

Long-time readers know that I have frequently commented on this site on the phenomenon of “event-driven” litigation (for example, here). These are securities lawsuits filed in the wake of a significant operational event or development that disrupts a company and tanks its share price, as opposed to securities suits that are premised on accounting or financial misrepresentations. I am far from the only observer that has commented on this phenomenon. Among others, the Bloomberg columnist Matt Levine, in an article provocatively entitled, “Everything Everywhere is Securities Fraud” (here) also weighed in on the event-driven litigation trend.

There are, of course, usually two sides to every story, and in a April 5, 2023 Law360 article entitled “Why Event-Driven Securities Class Actions Often Succeed” (here, subscription required), Daniel Barenbaum and Michael Dark of the Berman Tabacco firm provide a plaintiffs’ side view of event-driven securities litigation, and make out their case that these cases are not only not frivolous but provide securities investors important remedies and protections.

Continue Reading Are Event-Driven Cases More Often “Frivolous” or “Successful”?

Earlier this year, when Vice Chancellor Lori Will sustained the plaintiff’s SPAC-related Delaware State Court direct breach of fiduciary duty action against the motion to dismiss of the former directors of Gig Capital3 (Gig3), there was some speculation that the court’s ruling would lead to a “deluge” of similar lawsuits. While no onslaught of new lawsuits has yet materialized, there was (as I noted in a recent post, here) a SPAC-related Delaware state court direct breach of fiduciary duty action filed late last week against the board of Adara Acquisition Corp. Now, a shareholder plaintiff has filed an additional SPAC-related Delaware State Court direct breach of fiduciary duty action, against the board of Trident Acquisition Corp. in connection with the SPAC’s merger with AutoLotto, to form Lottery.com. As discussed below, the allegations against Trident’s board (as well as its sponsor and its financial underwriting advisor) more closely resemble those alleged in the Gig3 case, underscoring the possibility that plaintiffs’ attorneys may well seek to pursue the state court breach of fiduciary duty claim on similar theories. A copy of the April 3, 2023 complaint against the Trident board can be found here.

Continue Reading Shareholders Sue Former SPAC Execs in Delaware Direct Fiduciary Duty Breach Action

Since the initial outbreak of COVID-19 in the U.S. in March 2020, there have been scores of COVID-related securities suit filed. However, as the pandemic itself progressed, the nature of the lawsuits being filed also changed. Over time, the plaintiffs’ lawyers began targeting companies that had initially prospered at the outset of the pandemic, but whose fortunes flagged as circumstances changed. The prototypical example of a COVID-19-related securities suit involving a company that experienced this particular sequence of events is the lawsuit filed against exercise equipment company Peloton, whose equipment sold briskly at the outset of the pandemic but whose sales slackened as government shutdown orders lapsed and people began returning to work. However, in a March 30, 2023 order (here), the court granted the defendants’ motion to dismiss in the Peloton case, albeit without prejudice, in a decision that does not bode well in these kinds of change-of-fortune pandemic-related securities suits.

Continue Reading Dismissal Granted in Peloton COVID-Related Securities Suit

Though SPAC-related lawsuits were among the most important factors contributing to securities class action litigation filing volume in 2022, SPAC-related litigation has not yet been as significant of a factor so far in 2023. But while there have been relatively few SPAC related securities suits filed this year, there has been SPAC-related Delaware state court breach of fiduciary duty litigation. In the latest example of this Delaware state court litigation activity, plaintiff shareholders recently filed a Delaware Chancery Court lawsuit against the directors of a SPAC; the post-merger de-SPAC company, as successor in interest in the SPAC; and the SPAC’s sponsor, alleging that the defendants breached their fiduciary duties in connection with the merger. A copy of the plaintiff’s March 31, 2023, complaint can be found here.

Continue Reading SPAC Board and Sponsor Hit with Delaware State Court Breach of Fiduciary Duty Direct Action