On
The SPAC was formed in
The Court first determined that the Section 11 and Section 14(a) claims sounded in fraud because they were based on allegations classically associated with fraud and that the heightened pleading standards of Rule 9(b) of the Federal Rules of Civil Procedure therefore applied. With respect to the Section 14(a) claim, the Court further held that the PSLRA's heighted pleading requirements applied such that plaintiff was required to "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed."
Turning to the allegations, the Court held that the complaint did not meet the particularity requirements of the PSLRA, noting that, while plaintiff's complaint included lengthy excerpts of the Proxy Materials, plaintiff never identified with any specificity what portions of those documents or excerpts it takes issue with. The Court further found that the relationship with its largest customer was sufficiently disclosed in the Proxy Materials as a "marketing relationship." With respect to the revenue recognition claims, the Court held that the Proxy Materials sufficiently disclosed that its revenue recognition was based on price estimates rather than actual sales prices and that the revenue was recognized as soon as the products were delivered to its largest customer. Finally, the Court held that, while alleged violations of accounting standards can support a Securities Act claim, plaintiff must identify in what manner those provisions were violated. The Court held that plaintiff failed to allege how any accounting standards were violated.
The Court also held that plaintiff failed to adequately allege loss causation, providing a second reason to dismiss plaintiff's Section 14(a) claim, because plaintiff failed to allege that the short seller report revealed any new factual information regarding the Company's alleged negligence." In other words, rather than revealing new information, the short seller report merely "sensationalized" publicly available information and was not corrective.
Finally, the Court held that plaintiff lacked standing to pursue Section 11 claims. The Court explained that a plaintiff must have purchased shares traceable to the allegedly misleading Proxy Materials. Here, plaintiff purchased shares of the SPAC prior to the merger (and the issuance of the allegedly misleading Proxy Materials) and plaintiff therefore did not have statutory standing to sue under Section 11.
Originally published
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