447 F. App'x 229
2d Cir.2011Background
- Lead plaintiffs sue GE, CEO Immelt, and CFO Sherin for alleged securities fraud under §10(b) and Rule 10b-5.
- Plaintiffs claim GE concealed liquidity problems and a plan to raise at least $15 billion in dilutive equity during Sept 25–Oct 1, 2008.
- On Oct 1, 2008, GE announced the equity offering plan including $3 billion of preferred stock to Berkshire Hathaway at $22.25.
- GE’s stock rose from $23.63 to $24.50 after the Oct 1 announcement, despite the concealment theory.
- On Oct 2, 2008, GE disclosed pricing of the offering at $22.25, causing a stock price drop to $22.15 the same day, which plaintiffs connect to losses.
- The district court dismissed for failure to plead loss causation; the district court’s decision is affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was loss causation adequately pled? | Plaintiffs contend losses were caused by the concealed risk materializing. | Defendants argue no causal link between the concealment and the realized loss. | Loss causation not pled; dismissal affirmed. |
| Did plaintiffs plead a concealed pricing of the offering? | Plaintiffs maintain defendants concealed pricing details of the offering. | Defendants deny concealment of pricing specifics. | Court rejects concealment theory; not needed as loss causation fails. |
| Do Rule 9(b) and PSLRA pleading standards defeat the claim? | Plaintiffs argue adequate particularity under PSLRA/SB pleading. | Defendants contend failure to plead loss causation and scienter under heightened standards. | Standards satisfied only to the extent not enough for loss causation; claim fails. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) (facial plausibility requires more than conclusory statements)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (requirement that loss causation show the misrepresentation caused the loss)
- Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (loss causation burdens the plaintiff to prove the concealment caused the loss)
- Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (U.S. 2008) (elements of securities fraud and reliance on misrepresentation)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (particularity required for misrepresentation)
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (PSLRA heightened pleading requirements)