Section 20(a)

It’s Not Easy Being Green: LeapFrog Execs Dodge Class-Action Over Sales Projections

On August 2, 2016, U.S. District Judge Edward Chen dismissed a shareholder lawsuit brought against children’s educational toymaker LeapFrog Enterprises, Inc. (“LeapFrog”) for failure to adequately plead statements were false or misleading, or made with requisite intent.  Plaintiffs’ suit, which was consolidated in 2015, alleged that LeapFrog and its executives hid demand and inventory problems from investors.  The judge disagreed, finding that the investors had been sufficiently warned of problems with LeapFrog’s product lines and that the allegedly misleading statements were forward-looking and cautionary, and therefore fell within the PSLRA’s safe harbor.  Defendants’ public statements about many of the allegedly misleading topics helped drive home that Plaintiffs’ theory amounted to classic “fraud by hindsight.”

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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

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

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