12 F. Supp. 3d 225
D. Mass.2014Background
- This is a putative securities class action under the Securities Exchange Act and Rule 10b-5, brought by Bristol on behalf of a class of Vertex stock purchasers.
- Plaintiff alleges Vertex issued false statements on May 7, 2012 about interim Phase II results for VX-809 and Kalydeco, which were corrected on May 29, 2012.
- Plaintiff purchased 30,000 Vertex shares on May 30, 2012, after the corrective disclosure.
- During May 7–14, 2012, Vertex insiders sold over 539,000 shares for about $31.9 million.
- Defendants moved to dismiss under Rule 12(b)(6) for failure to plead securities fraud with heightened particularity and scienter.
- The court grants the motion to dismiss the action as to the remaining statements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to challenge May 7 statements | Bristol argues it was harmed by May 7 misrepresentation. | Bristol lacked standing because it purchased after the May 29 correction. | Standing lacking for May 7 claims; overall dismissal as to those statements. |
| Materiality of alleged misrepresentations | Multiple statements were material, collectively misleading. | Many statements were non-material or appropriately contextualized. | Most statements not actionable; May 29 attribution to a vendor may be the only potentially actionable misstatement. |
| Scienter (degree of culpable mental state) | Defendants knowingly or recklessly misrepresented results. | No concrete admissions or strong inferences of knowledge; insider trading not compelling. | No strong inference of scienter; insufficient to plead with the required particularity. |
| Secondary liability under Sections 20(a) and 20A | Control and insider trading claims should survive with underlying violation. | No underlying 10(b)-5 violation; these claims fail functionally. | Dismissed because there is no underlying securities violation. |
Key Cases Cited
- Mississippi Pub. Employees’ Ret. Sys. v. Boston Scientific Corp., 523 F.3d 75 (1st Cir. 2008) (material misrepresentation and loss causation standards under 10(b))
- Basic Inc. v. Levinson, 485 U.S. 224 (S. Ct. 1988) (materiality and market assimilation of corrective information)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (S. Ct. 2007) (strong inference standard for scienter)
- ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46 (1st Cir. 2008) (comparative inference approach to scienter)
- In re Boston Scientific Corp. Sec. Litig., 686 F.3d 21 (1st Cir. 2012) (insider trading and scienter considerations in 10(b) actions)
- New Jersey Carpenters Pension & Annuity Funds v. Biogen IDEC Inc., 537 F.3d 35 (1st Cir. 2008) (use of confidential witnesses and pleading sufficiency under PSLRA)