On
Plaintiff, on behalf of a putative class of stockholders who allegedly purchased Company stock between
First, the Court held that plaintiff failed to adequately allege falsity with respect to alleged statements regarding the Company's disclosure controls—such as "management assessed the effectiveness" of such controls—because plaintiff failed to articulate how such statements were indeed false at the time they were made. The Court noted that plaintiff failed to cite contemporaneous sources indicating the statements were untrue, and instead relied on hindsight arguments—for example, that the Company could not have conducted a good faith evaluation of its controls based on the remedial measures put in place following the audit committee report—which failed to sufficiently allege falsity.
Second, the Court held that plaintiff failed to adequately allege scienter. Plaintiff alleged that the Company and individual defendants were "personally responsible" for designing disclosure and internal controls, and any statements made about their design "were made on the basis of personal knowledge." The Court held that such allegations were "all speculation," and that despite plaintiff's allegation that defendants "had access to contrary facts," plaintiff did not identify any evidence of that. Rather, plaintiff pointed to defendants' later admission of error, which the Court held is insufficient to give rise to a strong inference of scienter. The Court reasoned that "treating [plaintiff's] allegations as sufficient would allow plaintiff[] to always speculate that control deficiencies missed initially but discovered later were within company knowledge from the start" and that "[a]ccordingly, some allegation 'that the defendant knew he was signing a false
Third, the Court held that plaintiff failed to adequately allege loss causation. In so holding, the Court reasoned that while the announcement of an investigation, standing alone, does not qualify as a corrective disclosure, it can form the basis of a viable loss causation theory if the complaint also alleges a subsequent corrective disclosure by the defendant and, in such instance, "no stock price drop need accompany the subsequent corrective disclosure." Thus, the Court held that plaintiff's allegations that defendants misrepresented the effectiveness of the Company's controls, followed by the announcement of the audit committee investigation, and subsequent findings of material weakness, would plausibly establish loss causation "[h]ad [plaintiff] adequately alleged falsity and scienter."
Finally, having found no primary liability under Section 10(b), the Court dismissed plaintiff's derivative claim under Section 20(a) against the individual defendants. The Court did, however, grant plaintiff leave to amend.
LINKS & DOWNLOADS
- Connor v.
Unisys Corp. , et al.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
10022
Tel: 2128484000
Fax: 2128487179
E-mail: virginia.goebel@shearman.com
URL: www.shearman.com
© Mondaq Ltd, 2024 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source