In an Order yesterday, Judge Swain precluded the trial testimony of the plaintiffs’ damages expert in a shareholder class action accusing Pfizer of concealing the cardiovascular risks of two drugs, Celebrex and Bextra.  Without a damages expert, it is unclear how the plaintiffs can prove their case at trial, which is currently scheduled for September. The expert, Danied Fischel, had identified (a) seven dates during the Class Period on which public disclosures allegedly revealed the cardiovascular risks of the drugs, causing Pfizer’s stock price to drop, and (b) five dates during the Class Period in which positive information about the drugs allegedly caused Pfizer’s stock price to rise.  His calculation of damages was based on the stock loss from the seven “corrective disclosures” offset by the rise on the five instances of stock price “inflation.” In a summary judgment ruling (covered in this post), Judge Swain rejected two of the seven corrective disclosures as grounds for damages.  Mr. Fischel then issued a supplemental report that, rather than simply dropping those damages, assumed that there would be an offsetting increase on the inflation days. Judge Swain ruled that this methodology did not meet the standards of Rule 702:
Continue Reading Judge Swain Strikes Plaintiffs’ Damages Expert in Pfizer Shareholder Class Action

In an opinion issued today, Judge Berman dismissed a putative securities fraud class action brought by shareholders of Ventrus Biosciences against the company and two of its officers. As Judge Berman summarized the plaintiffs’ claims:

At the core of the Complaint is the allegation that Defendants, as part of their efforts to raise capital for Ventrus, “touted” pre-2008 Phase II test results for VEN 309 conducted by the drug’s patent holder, Sam Amer, “[d]espite the fact that the small testing groups and subjective endpoints used in Amer’ s studies could not produce a reliable gauge of the efficacy of VEN 309.” Plaintiffs allege that Defendants’ misrepresentation of these Phase II test results-which were obtained during the second of three required stages of testing before a drug may obtain FDA approval-“misled investors as to VEN 309’s previous testing success and anticipated FDA approval,” and caused Plaintiffs to suffer economic loss when, on June 25, 2012, Ventrus disclosed that its Phase III clinical trial for VEN 309 “did not meet its endpoints” and that Ventrus would abandon its development of VEN 309.


Continue Reading Judge Berman Rules “Touting” of Unsuccessful Drug Trial Is Not Securities Fraud

In an opinion yesterday, Judge Koeltl dismissed a securities class action accusing various Dynegy officials of making false statements, and omitting material facts, concerning Dynegy’s attempt at a restructuring in 2011. One of the plaintiff’s theories was that Dynegy failed to tell shareholders that, while it was trying to restructure, the company was actually insolvent. Judge Koeltl found that the defendants were not obligated to characterize the situation in that particular way:
Continue Reading Judge Koeltl Dismisses Securities Class Action Because Alleged Fraud Would Harm Creditors, Not Shareholders

A complaint filed on Friday by the City of Providence accuses high frequency stock traders, stock exchanges and brokerage houses of rigging the stock market at the expense of ordinary investors.  Coming in the wake of publicity from Michael Lewis’ new book, Flash Boys, the suit is brought on behalf of a massive putative class of all investors who bought or sold shares on public exchanges for the past five years.  Among the named defendants are the NASDAQ and New York Stock Exchanges, Bank of America, E*Trade and other banks and brokers.
Continue Reading Complaint Alleges Fraud by High Frequency Traders, Stock Exchanges and Brokers

Today, Judge Forrest dismissed a putative securities fraud class action against yoga apparel company Lululemon and, as has come to be a regular practice, provided a draft of the opinion to counsel before issuing the final order. As she did last week, Judge Forrest provided the draft the morning before a scheduled court conference and invited comment from the parties. Unlike past instances, the final order on Lululemon’s motion to dismiss differs somewhat substantially from the draft order. Notably, the draft order ran to 39 pages, while the final opinion is 54 pages long. A comparison of the draft and final opinions does not reveal whether most of the changes were the result of input from counsel or were simply revisions made by the Court.
Continue Reading Another Dismissal — and Draft Opinion — by Judge Forrest in Lululemon Case

In an opinion today, Judge Daniels denied JP Morgan’s motion to dismiss a shareholder class action arising from its multibillion dollar losses from trades made by the “London Whale.”   In an April 2012 conference call, CEO Jaime Dimon described the matter as a “tempest in a teapot,” and CFO Douglas Braunstein said he was “comfortable” with the bank’s position.  The bank argued that the complaint failed to adequately allege that those statements were inconsistent with what the executives were told at the time:

[T]he oft-quoted statements by Braunstein and Dimon, respectively, during the April 13 earnings call—that JPMorgan was “comfortable” with the positions and that the press reports were a “tempest in a teapot”—were entirely consistent with what Dimon and Braunstein had been told about the London traders’ positions. The very documents on which the Complaint relies show that before the earnings call, Dimon and Braunstein were repeatedly assured by CIO personnel in London and others that the London portfolio was “balanced” and “manageable,” that the losses then incurred would “mean revert” and that potential future losses were a fraction of what they turned out to be.

Judge Daniels disagreed:
Continue Reading Judge Daniels Allows “London Whale” Shareholder Class Action to Proceed

In an opinion issued yesterday, Judge Furman allowed the majority of securities fraud claims against a state-owned sovereign wealth fund in Kazakhstan to proceed, denying the fund’s motion to dismiss on sovereign immunity and other grounds.  The plaintiffs purchased notes in a Kazakh bank majority owned by the fund.  The notes were sold only over the Kazakhstan and Luxembourg stock exchanges, but over 80% of the notes were denominated in U.S. dollars. Recognizing that state actors are generally immune to suit in a U.S. court, Judge Furman held that the sovereign wealth fund’s actions fit the “commercial activities” exception to the rule:
Continue Reading “Commercial Activities” Exception to Sovereign Immunity Rule Applies to Kazakhstan-Owned Investment Fund

In an opinion issued today, Judge Scheindlin dismissed a putative class action against an Argentinian energy company, its underwriters and executives, alleging violations of the Securities Act and Exchange Act.  The plaintiffs alleged that the company, YPF Sociedad Anonima, majority owned by co-defendant Repsol YPF, S.A., had failed to warn investors of the risk that it would be taken over by the Argentine government.  When YPF was in fact nationalized, its share price collapsed and the plaintiffs brought suit. Judge Scheindlin dismissed the Securities Act claims as untimely under their 1-year statute of limitations.  In doing so, she determined that the plaintiffs were on notice of the risk of nationalization at least a month-and-a-half before YPF was actually taken over:
Continue Reading Judge Scheindlin Dismisses Class Action Alleging Argentinian Firm Failed to Warn of Nationalization Risk

In an opinion issued on Friday, Judge Forrest dismissed the securities fraud claims of a putative class of Keryx Biopharmaceuticals shareholders.  The plaintiffs had alleged that Keryx had hidden from the market that an important trial for an in-development cancer drug had failed.  Judge Forrest disagreed:

There is a significant public interest in the development of life-saving drugs. For every drug that succeeds, others do not. Clinical trials are phased into stages: some drugs never make it past the first stage, others never make it past the second stage, and so on. The costs of failure are high, but the rewards for success are also high. The relationship and ratio between the two determines whether, as a matter of economics, the costs of experimentation are worth it. Publicly traded pharmaceutical companies have the same obligations as other publicly traded companies to comply with the securities laws, but they take on no special obligations by virtue of their commercial sector. It would indeed be unjust-and could lead to unfortunate consequences beyond a single lawsuit-if the securities laws become a tool to second guess how clinical trials are designed and managed. The law prevents such a result; the Court applies that law here, and thus dismisses these actions.


Continue Reading Judge Forrest Dismisses Securities Fraud Class Action Against Keryx Biopharmaceuticals