U.S. Supreme Court, Macquarie Infrastructure Corp. v. Moab Partners, L.P., Docket No. 22-1165

Securities

 

Securities Fraud Claim

 

Duty to Disclose

 

Pure Omissions

 

Private Action Under Rule 10b–5(b)

 

Section 10(b) of the Securities Exchange Act of 1934

 

Circuit Split

 

 

 

 

Securities and Exchange Commission (SEC) Rule 10b–5(b) makes it unlawful to omit material facts in connection with buying or selling securities when that omission renders “statements made” misleading. Separately, Item 303 of SEC Regulation S–K requires companies to disclose certain information in periodic filings with the SEC. The question in this case is whether the failure to disclose information required by Item 303 can support a private action under Rule 10b–5(b), even if the failure does not render any “statements made” misleading. The Court holds that it cannot. Pure omissions are not actionable under Rule 10b–5(b).

 

 

Section 10(b) of the Securities Exchange Act of 1934 makes it “unlawful for any person . . . to use or employ, in connection with the purchase or sale of any security . . ., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the SEC may prescribe.” 48 Stat. 891, 15 U. S. C. §78j(b). Rule 10b–5 implements this prohibition and makes it unlawful for issuers of registered securities to “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 CFR §240.10b–5(b) (2022). This Court “has found a right of action implied in the words of §10(b) and its implementing regulation.” Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008).

 

 

Section 13(a) of the Exchange Act requires issuers to file periodic informational statements. See 15 U. S. C. §§78m(a)(1), 78l(b)(1). These statements include the “Management’s Discussion and Analysis of Financial Conditions and Results of Operation” (MD&A), in which companies must “furnish the information required by Item 303 of Regulation S–K.” See SEC Form 10–K; SEC Form 10–Q. Item 303, in turn, requires companies to “describe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” 17 CFR §229.303(b)(2)(ii) (2022).

 

 

(…) The courts of appeals disagree on whether a failure to make a disclosure required by Item 303 can support a private claim under §10(b) and Rule 10b–5(b) in the absence of an otherwise-misleading statement.1 This Court granted certiorari to resolve that disagreement. 600 U. S. ___ (2023).

 

 

1 Compare Stratte-McClure v. Morgan Stanley, 776 F. 3d 94, 101 (CA2 2015) (“Item 303’s affirmative duty to disclose in Form 10–Qs can serve as the basis for a securities fraud claim under Section 10(b)”), with In re Nvidia, 768 F. 3d 1046, 1056 (CA9 2014) (“Item 303 does not create a duty to disclose for purposes of Section 10(b) and Rule 10b–5”); see also Oran v. Stafford, 226 F. 3d 275, 288 (CA3 2000) (“The ‘demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b–5. Such a duty to disclose must be separately shown’”).

 

 

Rule 10b–5(b) makes it unlawful “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 CFR §240.10b–5(b). This Rule accomplishes two things. It prohibits “any untrue statement of a material fact”—i.e., false statements or lies. Ibid. It also prohibits omitting a material fact necessary “to make the statements made . . . not misleading.” Ibid. This case turns on whether this second prohibition bars only half-truths or instead extends to pure omissions.

A pure omission occurs when a speaker says nothing, in circumstances that do not give any particular meaning to that silence.

 

 

Rule 10b–5(b) does not proscribe pure omissions. The Rule prohibits omitting material facts necessary to make the “statements made . . . not misleading.” Put differently, it requires disclosure of information necessary to ensure that statements already made are clear and complete (…). This Rule therefore covers half-truths, not pure omissions. Logically and by its plain text, the Rule requires identifying affirmative assertions (i.e., “statements made”) before determining if other facts are needed to make those statements “not misleading.”

 

 

(…) It once again “bears emphasis that §10(b) and Rule 10b–5(b) do not create an affirmative duty to disclose any and all material information.

Disclosure is required under these provisions only when necessary ‘to make . . . statements made, in the light of the circumstances under which they were made, not misleading.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. 27, 44 (2011) (quoting Rule 10b–5(b)).

 

 

Statutory context confirms what the text plainly provides. Congress imposed liability for pure omissions in §11(a) of the Securities Act of 1933. Section 11(a) prohibits any registration statement that “contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” 15 U. S. C. §77k(a). By its terms, in addition to proscribing lies and half-truths, this section also creates liability for failure to speak on a subject at all. See Omnicare, 575 U. S., at 186, n. 3 (“Section 11’s omissions clause also applies when an issuer fails to make mandated disclosures—those ‘required to be stated’—in a registration statement”). There is no similar language in §10(b) or Rule 10b–5(b). Cf. Ernst & Ernst v. Hochfelder, 425 U. S. 185, 208 (1976).

 

 

“Silence, absent a duty to disclose, is not misleading under Rule 10b–5.” Basic Inc. v. Levinson, 485 U. S. 224, 239, n. 17 (1988). Even a duty to disclose, however, does not automatically render silence misleading under Rule 10b–5(b). Today, this Court confirms that the failure to disclose information required by Item 303 can support a Rule 10b–5(b) claim only if the omission renders affirmative statements made misleading.

(Fn. 2: Moab and the United States spill much ink fighting the question presented, insisting that this case is about half-truths rather than pure omissions. The Court granted certiorari to address the Second Circuit’s pure omission analysis, not its half-truth analysis. See Pet. for Cert. I (“Whether . . . a failure to make a disclosure required under Item 303 can support a private claim under Section 10(b), even in the absence of an otherwise-misleading statement”); see also 2022 WL 17815767, *1 (Dec. 20, 2022) (distinguishing between these “two circumstances”). The Court does not opine on issues that are either tangential to the question presented or were not passed upon below, including what constitutes “statements made,” when a statement is misleading as a half-truth, or whether Rules 10b–5(a) and 10b–5(c) support liability for pure omissions.) 

 

 

 

 

 

(U.S. Supreme Court, April 12, 2024, Macquarie Infrastructure Corp. v. Moab Partners, L.P., Docket No. 22-1165, J. Sotomayor, Unanimous)

U.S. Court of Appeals for the Ninth Circuit, Alpha Venture Capital Partners LP v. Nader Pourhassan, Docket No. 21-35274

Corporate Insiders

 

Shareholders’ Complaint

 

Disgorgement of Profits

 

 

 

Section 16(b) of the Securities Exchange Act of 1934. Section 16(b) requires corporate insiders like CEO Pourhassan to disgorge to the corporation all profits the insiders make from buying and then selling (or selling and then buying) company securities within any six-month period (a so-called “short-swing” transaction)

 

 

The acquisition of a securities option is deemed to be equivalent to the acquisition of the security underlying that option

 

 

 

 

CytoDyn, Inc. is a publicly traded corporation incorporated in the state of Delaware. Appellee Nader Pourhassan is (and was, at all relevant times) CytoDyn’s Chief Executive Officer (CEO) and a member of its board of directors. In late 2019, CytoDyn granted Pourhassan options and warrants entitling him to purchase several million CytoDyn shares at certain, specified prices. In mid-2020, about five months after that option and warrant award, Pourhassan exercised those options and warrants and then sold the resulting CytoDyn stock at a profit. Appellants here—several shareholders of CytoDyn (the “Shareholders”)—sued Pourhassan, alleging that he violated Section 16(b) of the Securities Exchange Act of 1934. Section 16(b) requires corporate insiders like CEO Pourhassan to disgorge to the corporation all profits the insiders make from buying and then selling (or selling and then buying) company securities within any six-month period (a so-called “short-swing” transaction).

 

 

The district court dismissed the Shareholders’ complaint, finding that Pourhassan need not disgorge his short-swing profits to CytoDyn because his short-swing transaction fell within an exemption to the federal rule because the option and warrant award was “approved” by CytoDyn’s board of directors. We affirm.

 

 

Section 16(b) of the Securities Exchange Act of 1934 is meant to prevent corporate insiders (i.e., corporate executives, officers, and directors) from “exploiting information not generally available to others to secure quick profits.” Kern Cnty. Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 592 (1973). In Congress’s view, short-swing transactions by corporate insiders pose an “intolerably great” risk of this type of exploitation. Dreiling v. Am. Express Co., 458 F.3d 942, 947 (9th Cir. 2006) (quoting Kern, 411 U.S. at 592). So, to prevent potential abuse by corporate insiders, Section 16(b) requires such insiders to return to the corporation any profits they realize from short-swing transactions. See 15 U.S.C. § 78p(b). Section 16(b) “imposes strict liability regardless of motive,” requiring all corporate insiders to disgorge their profits from all short- swing transactions, even those transactions “not actually based on inside information.” Dreiling, 458 F.3d at 947.

 

 

Recognizing Section 16(b)’s broad reach, Congress authorized the Securities and Exchange Commission to issue rules exempting from Section 16(b) certain transactions that the SEC deemed unlikely to involve inside information. See 15 U.S.C. § 78p(b). Under that rulemaking authority, the SEC issued rules creating several exemptions from Section 16(b). As relevant here, SEC Rule 16b-3(d) exempts from Section 16(b) any “transaction . . . involving an acquisition from the issuer” (i.e., an acquisition from the insider’s corporation itself) so long as the transaction was either: 1) “approved by the board of directors of the issuer” (here, the issuer is CytoDyn); 2) approved by “a committee of the board of directors that is composed solely of two or more Non-Employee Directors”; or 3) approved by a shareholder vote. 17 C.F.R. § 240. 16b-3(d)(1), (2). In the SEC’s view, an insider’s acquisition of securities from the issuer does not “present the same opportunities for insider profit on the basis of non-public information as do” other types of transactions.  Dreiling, 458 F.3d at 948 (quoting Ownership Reports and Trading by Officers, Directors and Principal Security Holders, 61 Fed. Reg. 30,376, 30, 377 (June 14, 1996)). “Where the issuer, rather than trading markets, is on the other side of an officer or director’s transaction in the issuer’s equity securities, any profit obtained is not at the expense of uninformed shareholders and other market participants of the type contemplated by [Section 16(b)].” Id. (quoting Ownership Reports and Trading, 61 Fed. Reg. at 30,377).

 

 

1 The parties do not contest that the board of directors need only approve the insider’s acquisition of securities from the issuer and need not also approve the insider’s subsequent sale of those securities. So we assume without deciding that the parties are correct. See also Gryl ex rel. Shire Pharms. Grp. PLC v. Shire Pharms. Grp., 298 F.3d 136, 140–46 (2d Cir. 2002) (affirming a lower court ruling that the 16b-3(d)(1) exemption applied because the board approved a compensation plan that “precisely delimited the securities grants that the individual defendants would ultimately receive” without inquiring whether the plan also specified how the defendants were to sell the securities).

 

 

3 The parties do not contest that Pourhassan’s acquisition of the options and warrants was a “purchase” of securities under Section 16(b), so we assume without deciding that the parties are correct on this matter. See also Gryl, 298 F.3d at 141 (“For purposes of the rules promulgated under Section 16(b) the acquisition of a securities option is deemed to be equivalent to the acquisition of the security underlying that option.”).

 

 

(…) The operative text from the rule is “approved by the board of directors”; the two component phrases are “approved” and “board of directors.” Neither phrase supports the Shareholders’ proposed unanimity requirement.

 

 

(…) 5 The law of Delaware, the state where CytoDyn is incorporated, has an analogous understanding. Boards of directors are groups of “1 or more members, each of whom shall be a natural person,” and “the business and affairs of every corporation incorporated in Delaware shall be managed by or under the direction of” that corporation’s board. 8 Del. Code. § 141(a), (b).

 

 

So, if Rule 16b-3(d)(1) sets out no specific procedure for how a board must approve an insider-issuer securities acquisition, where do we find any procedural requirements? The specific context here—corporate boards of directors—provides the answer. In situations like this, the Supreme Court has recognized that the “gaps” in the federal laws “bearing on the allocation of governing power within a corporation” should generally be “filled with state law.” Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99 (1991). Here, state law fills the gap well. State corporate codes, supplemented by the articles of incorporation and corporate bylaws of individual corporations, typically specify the procedures that a corporate board must follow to “approve” corporate decisions. For instance, the corporate law of Delaware, CytoDyn’s state of incorporation and the home of most American corporations, explains that the “vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors.”  8 Del. Code § 141(b). In turn, Delaware defines a quorum as a “majority of the total number of directors.” Id. Note the precise language in the statute: a board decision made by majority of a quorum of a board constitutes an “act of the board of directors,” not an act of just part of the board. Id. So, for Delaware corporations like CytoDyn, a quorum of the board can take action by a majority vote. 6 Here, Delaware law thus fills the gap left by Rule 16b-3(d)(1). Delaware state law controls the specific procedures that CytoDyn’s board must follow to “approve” insider-issuer security transactions under Rule 16b-3(d)(1).

 

 

6 Delaware law does permit corporations to specify, through their bylaws or articles of incorporation, different procedures that their boards can use. Corporations may, for instance, require a larger or smaller number of directors than a simple majority for a quorum, or may require an affirmative vote by more than a simple majority of directors for the vote to be an “act of the board of directors.”  See 8 Del. Code § 141(b).  CytoDyn elected to retain Delaware’s default rules, such that a “majority” of CytoDyn’s board of directors “constitutes a quorum” and “the vote of a majority of the directors present . . . constitutes action by CytoDyn’s Board of Directors.”

 

 

(…) Pourhassan thus was not required to disgorge to CytoDyn his profits when he sold stock less than six months after receiving the 2019 option and warrant award. See 15 U.S.C. § 78p(b); 17 C.F.R. § 240.16b-3(d)(1). The Shareholders’ complaint was properly dismissed.

 

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, April 8, 2022, Alpha Venture Capital Partners LP v. Nader Pourhassan, Docket No. 21-35274, for Publication)

 

U.S. Court of Appeals for the Ninth Circuit, Weston Family Partnership LLP v. Twitter, Inc., Docket No. 20-17465

SEC

 

Disclosure (Scope of)

 

Duty to Disclose

 

Misleading Statements

Exchange Act’s Safe Harbor Provision for Forward-Looking Statements

Securities Law

 

Securities Fraud Lawsuit

 

Twitter

 

 

 

The panel affirmed the district court’s dismissal of a securities fraud lawsuit under §§ 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5, alleging that Twitter, Inc., misled investors by hiding the scope of software bugs customization. Twitter shares users’ cell phone location data with companies that pay more for ads tailored to certain users, but it permits users to opt out of such data-sharing. In May 2019, Twitter announced that it had discovered software bugs that caused sharing of cell phone location data of its users, but it told its users that it had fixed the problems. In August 2019, Twitter announced that it had again accidentally shared user data with advertisers, even for those who had opted out, but it had “fixed these issues.” Twitter had not resolved the software bugs, but instead had stopped sharing user data altogether for its Mobile App Promotion advertising program, resulting in a drop in revenue. In October 2019, Twitter disclosed the software bugs and reported a revenue shortfall, and its share price dropped.

 

The panel held that plaintiffs’ complaint failed to state a claim under § 10(b) because Twitter’s statements were not false or materially misleading. The panel held that the securities laws do not require real-time business updates or complete disclosure of all material information whenever a company speaks on a particular topic. To the contrary, a company can speak selectively about its business so long as its statements do not paint a misleading picture. The panel held that Twitter’s statements about its advertising program were not false or misleading because they were qualified and factually true, and the company had no duty to disclose more than it did under federal securities law. Specifically, securities laws did not require Twitter to provide real-time updates about the progress of its Mobile App Promotion program. Further, plaintiffs did not plausibly or with particularity allege that the software bugs disclosed in August had materialized and affected revenue in July. In addition, Twitter’s July 2019 statements fell within the Exchange Act’s safe harbor provision for forward-looking statements.

 

When Twitter said that it had “fixed these issues,” it did not mean resolving the software bugs, which proved to be difficult. Rather, Twitter had stopped sharing user data for its MAP advertising program altogether. This meant no data- sharing for all users and thus also less revenue from MAP. Twitter did not disclose these facts at that time.

 

(…) Finally, about 11 weeks later on October 24, Twitter in its quarterly earnings report disclosed the software bugs hampering MAP and reported a $25 million revenue shortfall. In response to this news, some analysts downgraded the stock and the share price dropped over 20%.

 

Plaintiffs allege that these statements were false or materially misleading:

(1) Twitter’s July 26, 2019 shareholder letter and July 31, 2019 Form 10-Q stated the company is “continuing its work to increase the stability, performance, and flexibility of its ads platform and MAP,” but that it is “not there yet” and that this work will “take place over multiple quarters, with a gradual impact on revenue.” Segal added that the company is “still in the middle of that work” relating to MAP improvements, and that it is “still at the state where he believes that you would see its impact be gradual in nature.” Plaintiffs allege that these statements are false because the defendants did not disclose the software bugs allegedly plaguing MAP then and suggested that MAP was on track.

 

(2) The Form 10-Q also contained warnings that the company’s products and services “may contain undetected software errors, which could harm its business and operating results.” Plaintiffs claim that this statement is misleading because Twitter supposedly knew by this time that “software errors” would—not just “may”—harm the bottom line.

(3) Because of the allegedly false or misleading statements in the 10-Q filing, Twitter’s Sarbanes- Oxley (SOX) certifications signed by Dorsey and Segal were also false or misleading.

(4) On August 6, 2019, the company issued a tweet that stated: “We recently discovered and fixed issues related to your settings choices for the way we deliver personalized ads, and when we share certain data with trusted management and advertising partners,” and Twitter’s Help Center claimed that it “fixed these issues on August 5, 2019.” Plaintiffs assert that this statement misleadingly suggested Twitter had solved the software bugs, not just the privacy leak.

(5) On September 4, 2019 at an investor conference, Segal stated that the company’s “MAP work is ongoing” and that Twitter “continued to sell the existing MAP product.” Plaintiffs again claim that Twitter failed to disclose the scope of the software bugs hindering MAP.

(6) At the same conference, Segal stated that “Asia . . . has tended to be more MAP-focused historically.” This statement, according to Plaintiffs, glossed over MAP’s software bugs.

 

II. The Complaint Fails to State a Claim Under Section 10(b) Because Twitter’s Statements Are Not False or Materially Misleading.

Section 10(b) of the Exchange Act makes it unlawful:

To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the SEC may prescribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. § 78j(b). The SEC, in turn, issued Rule 10b-5, which declares it unlawful:

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5.

To state a claim under Section 10(b) of the Exchange Act and Rule 10b-5, the complaint must plausibly allege: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation. Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 267 (2014) (citations omitted).

For a statement to be false or misleading, it must “directly contradict what the defendant knew at that time” or “omit material information.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1008–09 (9th Cir. 2018); see also 15 U.S.C. § 78u-4(b)(1)(A)–(B).

Plaintiffs must also overcome several hurdles to successfully plead a claim under Section 10(b). First, under the PSLRA’s particularity requirements and Federal Rule of Civil Procedure 9(b), allegations of “fraud must be accompanied by the who, what, when, where, and how of the misconduct charged.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (cleaned up); see also 15 U.S.C. § 78u-4(b)(1). Second, an allegedly misleading statement must be “capable of objective verification.” Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 606 (9th Cir. 2014). For example, “puffing”—expressing an opinion rather than a knowingly false statement of fact—is not misleading. Id.; see also Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1206–07 (9th Cir. 2016). Third, a statement is not actionable just because it is incomplete. In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1085 (9th Cir. 2002). Section 10(b) and Rule 10b-5(b) “do not create an affirmative duty to disclose any and all material information. Disclosure is required . . . only when necessary ‘to make . . . statements made, in the light of the circumstances under which they were made, not misleading.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011) (quoting 17 C.F.R. § 240.10b-5(b)). 

Finally, even if a statement is objectively false or misleading, the PSLRA provides a “safe harbor” for forward-looking statements if such statements are either identified as forward-looking and accompanied by a meaningful cautionary statement, or if the plaintiff fails to show that the statement was made with actual knowledge that it was false or misleading. See 15 U.S.C. § 78u-5(c)(1); see also In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010).

 

A. Securities laws do not require Twitter to provide real-time updates about the progress of its MAP program.

Plaintiffs suggest that Twitter—when faced with a setback in dealing with software bugs plaguing its MAP program—had a legal duty to disclose it to the investing public. Not so. While society may have become accustomed to being instantly in the loop about the latest news (thanks in part to Twitter), our securities laws do not impose a similar requirement. Section 10(b) and Rule 10b-5 “do not create an affirmative duty to disclose any and all material information.” Matrixx, 563 U.S. at 44.

Put another way, companies do not have an obligation to offer an instantaneous update of every internal development, especially when it involves the oft-tortuous path of product development. See Vantive, 283 F.3d at 1085 (“If the challenged statement is not false or misleading, it does not become actionable merely because it is incomplete.”). Indeed, to do so would inject instability into the securities market, as stocks may wildly gyrate based on even fleeting developments. A company must disclose a negative internal development only if its omission would make other statements materially misleading. Matrixx, 563 U.S. at 45 (“Even with respect to information that a reasonable investor might consider material, companies can control what they have to disclose under these provisions by controlling what they say to the market.”).

Plaintiffs argue that Twitter’s failure to disclose the software bugs’ impact on MAP in July 2019 was materially misleading because its prior statements had allegedly left a “misimpression” that the work to improve MAP was “on track.” But a closer examination of the statements reveals a much more qualified and less definitive characterization of the MAP program. For example, the July 2019 shareholder letter and 10-Q stated that Twitter is “continuing its work to increase the stability, performance, and flexibility of its ads platform and MAP. . . but we’re not there yet.” Similarly, the CFO explained that the company is “still in the middle of that work” relating to MAP. And later in September of that same year, the CFO again reiterated that the “MAP work is ongoing.”

None of these statements suggests that Twitter’s MAP program was “on track.” Rather, they suggest a vaguely optimistic assessment that MAP, like almost all product developments, has had its ups and downs, even as the company continues to make progress. Perhaps if Twitter had set a specific deadline or revenue impact for MAP, its somewhat optimistic statements could seem like an implied affirmation of that target. But Twitter never made such specific or unqualified guidance. And with no such guidance, Twitter’s statements are so imprecise and noncommittal that they are incapable of objective verification. See Apollo, 774 F.3d at 606 (distinguishing non-actionable vague puffery from statements capable of objective verification); In re Cutera Sec. Litig., 610 F.3d at 1111 (“Mildly optimistic, subjective assessment hardly amounts to a securities violation.”). Nor can it be said that the company “touted positive information to the market” such that it “became bound to do so in a manner that wouldn’t mislead investors, including disclosing adverse information that cuts against the positive information.” Khoja, 899 F.3d at 1009.

In short, Twitter had no legal duty to disclose immediately the software bugs in its MAP program, especially given that its earlier statements about MAP’s progress were qualified and vague.

(…) Even then, an express statement of the company being “on track” to meet a target would likely be protected as a forward-looking statement under the safe harbor provision of the PSLRA. Wochos v. Tesla, Inc., 985 F.3d 1180, 1192 (9th Cir. 2021). (Fn. 4).

(…) But Twitter’s August 6 Help Center blog post said no such thing. The context makes clear that Twitter had “fixed” the inadvertent data-sharing; there is no mention of software bugs, let alone ridding of them. See Retail Wholesale & Dep’t Store Union Local 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1278 (9th Cir. 2017) (“A duty to provide information exists only where statements were made which were misleading in light of the context surrounding the statements.” (emphasis added)). The blog post starts off by noting that Twitter wants “to give you control over your data” but that it had “recently found issues” of inadvertent data-sharing. The post then states: “We fixed these issues on August 5, 2019. We know you will want to know if you were personally affected . . . . What is there to do? Aside from checking your settings, we don’t believe there is anything for you to do.” These statements address Twitter users’ concerns about their privacy, and thus the “fix” related to privacy leaks, not software bugs that are not even mentioned in the blog post. In short, an ordinary investor would not read Twitter’s Help Center blog post as saying that Twitter had remediated the software issues.

 

C. Twitter’s July 2019 statements fall within the safe harbor provision.

Plaintiffs’ challenge of Twitter’s July 2019 statements in its shareholder letter and 10-Q fails for another reason: They were identified as forward-looking statements and fall within the safe harbor of the Exchange Act. 15 U.S.C. § 78u- 5(c)(1); see also Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1058 (9th Cir. 2014) (“Classic growth and revenue projections... are forward-looking on their face.”). These forward-looking statements in the shareholder letter and 10-Q were accompanied by very detailed meaningful cautionary language that “identified important factors that could cause actual results to differ materially from those in the forward- looking statements.” 15 U.S.C. § 78u-5(c)(1)(A)(i).

 

III. The District Court Properly Dismissed the Section 20(a) Claims.

Under Section 20(a) of the Exchange Act, “certain ‘controlling’ individuals are also liable for violations of section 10(b) and its underlying regulations.” Zucco Partners, 552 F.3d at 990 (citing 15 U.S.C. §78t(a)). Because a Section 20(a) claim is derivative, “a defendant employee of a corporation who has violated the securities laws will be jointly and severally liable to the plaintiff, as long as the plaintiff demonstrates ‘a primary violation of federal securities law’ and that ‘the defendant exercised actual power or control over the primary violator.’” Id. (citation omitted). But, as shown above, Plaintiffs did not adequately plead a primary violation of Section 10(b) or Rule 10b-5 by any defendant. Thus, control person liability under Section 20(a) cannot survive.

 

CONCLUSION

The district court’s order granting the defendants’ motion to dismiss is AFFIRMED.

 

(Because we hold that the complaint did not adequately allege falsity, we need not address scienter or loss causation.) (Fn. 7).

 

 

(U.S. Court of Appeals for the Ninth Circuit, March 23, 2022, Weston Family Partnership LLP v. Twitter, Inc., Docket No. 20-17465, for Publication)

Credit Suisse Securities (USA) LLC v. Simmonds

Statute of limitations: securities: under §16(b) of the Securities Exchange Act of 1934, a corporation or security holder of that corporation may sue corporate insiders who realize profits from the purchase and sale, or sale and purchase, of the corporation’s securities within any 6-month period. The Act pro­vides that such suits must be brought within “two years after the date such profit was realized.” 15 U. S. C. §78p(b); Held: Even assuming that the 2-year period can be extended (a ques­tion on which the Court is equally divided), the Ninth Circuit erred in determining that it is tolled until a §16(a) statement is filed. The text of §16(b)—which starts the clock from “the date such profit was realized,” §78p(b)—simply does not support the Whittaker rule. The rule is also not supported by the background rule of equitable tolling for fraudulent concealment. Under long-settled equitable-tolling principles, a litigant must establish “(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstances stood in his way.” Pace v. DiGuglielmo, 544 U. S. 408, 418. Tolling therefore ceases when fraudulently concealed facts are, or should have been, discovered by the plaintiff. Allowing tolling to continue beyond that point would be inequitable and inconsistent with the general purpose of statutes of limitations: “to protect defendants against stale or unduly delayed claims.” John R. Sand & Gravel Co. v. United States, 552 U. S. 130, 133. The Whittaker rule’s inequity is especially apparent here, where the theory of §16(b) liability is so novel that petitioners can plausibly claim that they were not aware they had to file a §16(a) statement. Under the Whittaker rule, al­leged insiders who disclaim the necessity of filing are compelled ei­ther to file or to face the prospect of §16(b) litigation in perpetuity. Had Congress intended the possibility of such endless tolling, it would have said so. Simmonds’ arguments to the contrary are un­persuasive. The lower courts should consider in the first instance how usual equitable tolling rules apply in this case (U.S.S.Ct., 26.03.12, Credit Suisse Securities (USA) LLC v. Simmonds, J. Scalia).

Délai : Securities : selon la §16(b) de la loi fédérale de 1934 sur les transferts de papiers-valeurs, une personne morale ou le détenteur de papiers-valeurs de la personne morale peut agir en justice contre un initié de la personne morale qui réalise un profit résultant de l’achat et de la vente, ou de la vente et de l’achat, de papiers-valeurs de la personne morale, cela à l’intérieur d’une période de 6 mois. La loi prévoit qu’une telle action doit être déposée dans les 2 ans après la date à laquelle le profit a été réalisé. La Cour juge en l’espèce que même en assumant que la période de 2 ans peut être prolongée (une question sur laquelle la Cour est également divisée), le Neuvième Circuit fédéral s’est trompé en déterminant que ce délai était suspendu jusqu’à ce qu’une déclaration au sens de la §16(a) soit déposée. Aucune place n’existe en effet pour la règle de suspension équitable au motif d’une dissimulation frauduleuse. Selon les principes bien établis de suspension équitable, celui qui s’en prévaut doit établir (1) qu’il a agi de manière diligente dans la défense de ses droits, et (2) que des circonstances extraordinaires l’ont empêché de respecter le délai. La suspension cesse dès que le requérant découvre, ou aurait dû découvrir, les faits dissimulés. Permettre à la suspension de se poursuivre au-delà de ce point serait inéquitable et inconsistant avec le but général des délais : soit la protection du défendeur contre des réclamations latentes ou différées sans raison. Toute théorie de suspension de délai serait en l’espèce inéquitable du fait que la responsabilité fondée sur la §16(b) est une institution nouvelle et que le défendeur peut prétendre de manière crédible n’avoir pas été conscient de devoir déposer une déclaration au sens de la  §16(a). Le Congrès peut certes prévoir des suspensions de délai sans limite, mais il doit s’exprimer expressément en ce sens, ce qu’il n’a pas fait ici.