In a decision last week, Judge Sweet ruled that the self-regulatory organization (“SRO”) immunity applied to bar some of the claims brought against the NASDAQ stock exchange in the consolidated In re Facebook IPO litigation. Judge Sweet’s opinion in essence divided the claims between those that preceded the IPO and those that occurred during and after the IPO, holding the SRO immunity did not shield the NASDAQ for pre-IPO-based claims.
As Judge Sweet explained, the SRO immunity applies to bar “private damages suits in connection with the discharge of [an SRO’s] regulatory responsibilities.” Here, the plaintiffs’ negligence claims were “separated between first, the design, testing and touting of NASDAQ’s software, (the “technology negligence claims”), all executed prior to trading, and second, the decision not to halt trading or cancel the impacted trades (the “halting trade negligence claims”) , determined during the IPO.” Likewise, Judge Sweet divided the allegedly fraudulent statements into two categories: “(1) failure to update pre-Class Period statements touting the reliability and capability of NASDAQ’s technology and trading platforms (“pre-Class Period Statements”); and (2) failure to speak completely and accurately in connection with disseminating “Market System Status” messages to market participants during the Class Perod (“Class Period Statements”).” In each case, the claims relating to the pre-IPO design and promotion of the NASDAQ were permitted, while the claims relating to the functioning or failure of the market after the IPO commenced were dismissed as barred by the SRO immunity. As Judge Sweet characterized the former claims, “[s]ervicing NASDAQ’s own business, not the governments’, serves to increase trading and is non-governmental conduct ‘unprotected by absolute immunity.'” By contrast, “[t]he Class Period statements involve real time announcements of NASDAQ’s decisions regarding its regulatory decisions to suspend, resume or cancel trading,” and as such were immune from suit. See our previous coverage of the case here.