On December 16, 2014, the Ninth Circuit affirmed the U.S. District Court of Arizona’s dismissal of a Section 10(b) class action against Apollo Education Group, Inc., a for-profit education company, and several of its officers and directors. In doing so, the Ninth Circuit held that the heightened pleading standard of Federal Rule of Civil Procedure Rule 9(b) applies to all elements of a securities fraud action, including loss causation.
Securities fraud actions are often filed on the heels of an announcement of an internal or SEC investigation. A recent Ninth Circuit decision, Loos v. Immersion Corp., may make it easier for company executives to sleep at night following such an announcement. The Ninth Circuit has joined a growing number of circuits holding that the announcement of an internal investigation, standing alone, is insufficient to show loss causation at the pleading stage. READ MORE
A lack of sweaty models trying on yoga pants may be problematic, but does it give rise to securities fraud? Not in the Southern District of New York. In In re lululemon Securities Litigation, decided on April 18, 2014, Judge Katherine B. Forrest dismissed in its entirety a class action complaint against lululemon based on sheer yoga pants alleging violations of Section 10(b) and Section 20(a) of the Exchange Act and SEC Rule 10b-5. As summarized by the court, lead plaintiff alleged, “if only lululemon had someone try on its black luon yoga pants before they shipped, it would have realized they were sheer; similarly, if lulumeon had only had someone exercise in certain athletic wear (enough to produce sweat), it would have realized that the colors bled.” Based on these purported shortcomings, plaintiff alleged that statements touting the high quality of the company’s products were materially false and misleading. The court, however, disagreed: “This narrative requires the Court to stretch allegations of, at most, corporate mismanagement into actionable federal securities fraud. This is not the law.” READ MORE
Imagine a plaintiff who buys stock in a company that subsequently discloses a misstatement in its financial statements that existed at the time plaintiff invested. The stock price drops upon the initial disclosure, and then rebounds back above the purchase price. Can that plaintiff plead economic loss, as is required under Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005)? According to the Second Circuit, the answer is yes. READ MORE