In re Evoqua Water Technologies Corp. Securities Litigation, 1:18-cv-10320

Background

Evoqua Water Technologies completed an IPO (Nov. 2017) and a secondary public offering (Mar. 2018); lead plaintiffs are purchasers of Evoqua common stock during Nov. 1, 2017–Oct. 30, 2018.
Plaintiffs allege Evoqua implemented a Voluntary Separation Plan (VSP) that removed experienced sales and integration personnel and replaced them with less experienced, lower-paid staff to boost short‑term profitability pre-IPO.
Plaintiffs allege Evoqua engaged in improper revenue-recognition and channel-stuffing practices (e.g., "inventory parking," premature revenue recognition, extended payment terms) that artificially inflated reported revenues and EBITDA.
After the SPO, Evoqua missed guidance in 2018 and its stock fell sharply (notably a ~35% drop on Oct. 30, 2018); plaintiffs say this revealed the undisclosed harms from the staffing and accounting practices.
Procedural posture: plaintiffs filed a securities class action alleging violations of the Securities Act (§§11, 12(a)(2)), the Exchange Act (§10(b)/Rule 10b‑5, §20A), and control‑person claims (§15, §20); defendants moved to dismiss. The court granted the motion in part and denied in part.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Are forward‑looking statements and vague corporate statements actionable?	Statements about investments in salesforce, M&A strategy, and growth were misleading because they concealed the VSP and integration failures.	Statements were forward‑looking or puffery and accompanied by adequate cautionary language; thus non‑actionable.	Court: most challenged forward‑looking statements fall under the bespeaks‑caution doctrine and many statements are non‑actionable puffery.
Do plaintiffs state Securities Act (§11 and §12(a)(2)) claims (falsity, materiality, standing) based on (1) salesforce cuts, (2) acquisition/integration failures, (3) accounting/revenue irregularities?	The registration statements/prospectuses omitted that VSP had effectively stripped critical sales/integration personnel and that accounting practices improperly inflated revenue; omissions were material.	Disclosures (risk factors about VSP, integration risks) cured any omission; CW allegations are unreliable; alleged accounting misstatements are quantitatively immaterial.	Court: Plaintiffs pleaded standing and sufficiently alleged falsity/materiality on all three theories under §§11 and 12(a)(2); Securities Act claims survive.
Do plaintiffs plead scienter for Exchange Act §10(b)/Rule 10b‑5 claims against Evoqua, Keating, and Stas?	Alleged insider sales around offerings, GAAP violations, core‑operations knowledge, and CW allegations support a strong inference of scienter.	Insider sales were in public offerings (not suspicious), GAAP violations alone are insufficient to show scienter, and CW allegations do not show knowledge of named defendants.	Court: Plaintiffs failed to plead a strong inference of scienter as to the Exchange Act defendants; §10(b)/Rule 10b‑5 claims dismissed.
Are control‑person, Item 303, and insider‑trading claims viable?	AEA and individual executives exercised control; Item 303 requires disclosure of known trends; §20A applies if underlying §10(b) is shown.	Plaintiffs lack predicate Exchange Act violation; Item 303 does not force disclosure of internal strategy; some individual control claims lack particularized allegations.	Court: §15 control claims survive as to AEA, Keating, and Stas but fail as to Rodi and Webster; §20(a) (control under Exchange Act), §20A, and Item 303 claims dismissed.

Key Cases Cited

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
Ashcroft v. Iqbal, 556 U.S. 662 (court need not accept bare legal conclusions)
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (PSLRA "strong inference" standard for scienter)
Rombach v. Chang, 355 F.3d 164 (2d Cir.) (Securities Act pleading and ‘‘total mix’’/context analysis)
Iowa Public Employees’ Retirement System v. MF Global, Ltd., 620 F.3d 137 (2d Cir.) (bespeaks‑caution doctrine and forward‑looking statements)
Novak v. Kasaks, 216 F.3d 300 (2d Cir.) (use of confidential witnesses; particularity requirement)
Ganino v. Citizens Utilities Co., 228 F.3d 154 (2d Cir.) (truth‑on‑the‑market / immateriality where market already knows)
ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JPMorgan Chase Co., 553 F.3d 187 (2d Cir.) (scienter theories: motive/opportunity and recklessness; strength of circumstantial evidence)
Litwin v. Blackstone Group, L.P., 634 F.3d 706 (2d Cir.) (Sections 11/12 analysis and material omission theories)
Pinter v. Dahl, 486 U.S. 622 (statutory‑seller requirement under §12(a)(2))