In an opinion yesterday, Judge Forrest dismissed the securities fraud claims brought against GLG Life Tech Corporation and two of its executives for allegedly misrepresenting the nature of the company’s relationship with its biggest customer.  GLG produces high-grade stevia extract — a sweetener derived from the stevia plant.

At its core, this case concerns whether defendants properly revealed the decline of the relationship between GLG and its largest customer, Cargill Incorporated (“Cargill”). According to plaintiffs, in early 2011, defendants became aware that GLG’s contractual agreement with Cargill was doomed – plaintiffs contend that defendants failed to timely notify the market of this fact. Providing a backdrop to these allegations, however, is the following: (1) GLG made it known to the market that Cargill was GLG’s largest and most important customer; (2) defendants told investors on March 31,2011 that as of that date, Cargill had purchased all it was going to purchase from GLG for 2011; and (3) defendants filed a 40-F Form on March 31, 2011 with the SEC that stated GLG earned 90% of its revenues in 2009 from Cargill, 47% of its revenues in 2010 from Cargill, and that it expected revenues derived from Cargill to decrease even further in 2011.

Judge Forrest ruled that the complaint failed on two grounds: scienter and falsity.

Here, plaintiffs have failed to allege that defendants had a plausible motive to defraud investors. While plaintiffs initially alleged that defendants had a motive to mislead the market because they wanted a strong offering, this contention is plainly contradicted by plaintiffs’ proffered timeline: defendants allegedly began misleading the market on March 31, 2011, but the Offering ended on February 23, 2011.  Moreover, plaintiffs have failed to set forth any other possible motive on the part of defendants -they did not allege, for example, that defendants were attempting to engage in insider trading; in fact, defendant Zhang purchased a significant number of shares during the putative class period.


As a separate ground for dismissing plaintiffs’ Complaint, plaintiffs have failed to sufficiently allege that defendants made false or misleading statements in connection with the GLG-Cargill relationship. Put simply, as of March 31,2011, plaintiffs’ own allegations show that defendants disclosed the nature of the deteriorating GLG-Cargill relationship so as to put the market on notice of such fact; after that point, plaintiffs make only cursory allegations that there was additional information to be revealed.