SEC Rule 10b-5

Keep Looking Forward: Federal Court Holds Company’s Bad Legal Predictions Protected by PSLRA’s Safe Harbor

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Gavel and Hundred-Dollar Bill

In a comprehensive tour of the Private Securities Litigation Reform Act’s (“PSLRA”) safe-harbor provisions, on November 22, 2016, a federal court in Massachusetts dismissed a shareholder class-action lawsuit against Neovasc, Inc.  In holding that Neovasc’s ultimately faulty predictions concerning the outcome of a trade secrets lawsuit fell within the PSLRA’s safe harbor, the court rejected the plaintiff’s attempts to import a scienter requirement into the safe-harbor inquiry, among other things, and dismissed the complaint without leave to amend.

This putative class-action came on the heels of a $70 million jury verdict against Neovasc in May 2016. In that case, a jury found that Neovasc misappropriated certain trade secrets from CardiAQ Valve Technologies after CardiAQ had severed its manufacturing relationship with Neovasc, and Neovasc had patented a competing product.  Neovasc’s stock price fell approximately 75 percent when the jury verdict was announced.  Shortly after the verdict and stock decline, shareholders filed the class action, alleging securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The plaintiff alleged, among other things, that prior to the verdict, Neovasc CEO Alexei Marko mischaracterized the lawsuit as “baseless,” and that Neovasc had misstated that the suit was “without merit” in the company’s SEC filings.

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Carrying the Halli-burden: District Court Takes Up Price Impact at Class Certification in the Wake of Halliburton v. Erica P. John Fund

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In a lengthy ruling containing a detailed analysis of dueling economic expert reports, a federal court in Texas held on July 25, 2015 that defendant Halliburton Company demonstrated a lack of price impact at the class-certification stage on nearly all of the plaintiffs’ claims, thus rebutting the presumption of reliance.  This action has twice been to the Supreme Court, most recently in Halliburton, Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (“Halliburton II”), which held that the fraud-on-the-market presumption of reliance may be rebutted by showing a lack of price impact from the alleged misrepresentation.  The district court’s recent decision is significant because it is one of the first to consider the issue of price impact post-Halliburton II, and because the decision suggests that lower courts may be willing to wade deep into the complications of event studies and economic analysis in order to determine price impact at the class-certification stage.

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Supreme Court Rejects Calls to Overrule Fraud-on-the-Market Theory in Halliburton; Presumption of Reliance Still a Basic Part of Class Certification

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Today the Supreme Court rejected calls from lawyers, economists and corporate associations to overrule the “fraud-on-the-market” theory that makes it possible to litigate federal securities fraud claims as class actions, instead handing defendants a modest procedural victory.  In Halliburton Co. v. Erica P. John Fund, Inc., the Court declined to overrule a decision that for more than twenty-five years has been used by securities plaintiffs to certify thousands of federal class actions, but also recognized that defendants can rebut class certification by showing that allegedly misleading statements did not affect the price of a company’s securities.  Halliburton kills what had been a growing movement to eliminate federal securities fraud class actions for all intents and purposes.

Plaintiff-respondent Erica P. John Fund, Inc. (the “Fund”) purchased stock in Halliburton and lost money when Halliburton’s stock price dropped upon the release of certain negative news regarding the company.  The Fund filed suit against Halliburton and its CEO David Lesar (collectively, “Halliburton”), alleging that Halliburton had made knowing or severely reckless misrepresentations concerning those topics, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. READ MORE →

SEC Speaks, Cuban Tweets

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The leaders of the Securities and Exchange Commission addressed the public on February 21-22 at the annual SEC Speaks conference in Washington, D.C.  The presentations covered an array of topics, but common themes included the Commission’s ongoing effort to carry out the rulemaking agenda set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, its role as an enforcement body post-financial crisis, its increasing utilization of technology, and its renewed focus on the conduct of gatekeepers.  In a surprise appearance, Dallas Mavericks owner and former insider trading defendant Mark Cuban attended the first day of the conference.  During his time at the conference, Mr. Cuban shared his thoughts on a number of the presentations via his Twitter account.

From a litigation and enforcement perspective, key takeaways from the conference include the following: READ MORE →

NBA Team Owner Mark Cuban “Talks Trash” After Defense Verdict

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Matrix

Following a defense verdict in the insider trading case brought against him by the SEC, Dallas Mavericks owner Mark Cuban has not been sitting on the bench—but rather using his blog to stay on the offensive.  Since the October 16, 2013 verdict, Cuban continues to post about the case on his blog—including, just a few days ago, blogging about when his own blog became the focus of the trial.  According to his October 26 post, an SEC attorney asked him during trial if everything he posted on his blog was true information, to which he replied that it was meant more “to communicate a point” and stimulate discussion.  Following up, the SEC attorney  asked: “If you post on your blog that you think the Lakers are going to stink in 2013 . . . you’re not telling this jury that that’s an opinion you don’t honestly hold, right?”   Cuban posted that the courtroom “cracked up” when he replied “This year?”, before going on to answer: “Well, no.  In 2004, I wouldn’t say it.  They had Shaq, they had Kobe, they actually went to the finals . . . To answer your question, if I said in 2004 that they stink, I didn’t believe it.”  In an earlier blog entry, Cuban also poked fun at the former Head of Enforcement—posting about internal emails, disclosed earlier in the case, in which SEC attorneys commented on photos of Cuban. READ MORE →