In re Kit Digital, Inc. Securities Litigation
2013 U.S. Dist. LEXIS 39891
S.D.N.Y.2013Background
- In a consolidated KIT Digital, Inc. securities action, HMEPS was appointed Lead Plaintiff and Bernstein Liebhard LLP Lead Counsel in September 2012.
- Eight movants sought lead plaintiff status; two conceded not having the largest financial stake; two did not oppose and were deemed withdrawn.
- McHardy opposed HMEPS, arguing HMEPS lacked standing/adequacy, while HMEPS asserted it had the largest financial interest and typical/adequate representation.
- The class alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 in connection with KIT’s May 3, 2012 disclosure of disappointing results.
- The court applied PSLRA lead-plaintiff standards, including the Lax/Olsten factors and Rule 23 considerations, to evaluate presumptive lead plaintiff status.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HMEPS satisfies PSLRA presumptive lead plaintiff standard | HMEPS has largest financial stake and will adequately represent the class. | McHardy contends HMEPS lacks standing/adequacy and may be conflicted. | HMEPS satisfied PSLRA criteria and was appointed Lead Plaintiff. |
| Whether HMEPS has the largest financial interest | HMEPS’s 124,050 KIT shares and estimated loss exceed McHardy’s loss. | McHardy disputes the loss figures and impact on HMEPS’s stake. | HMEPS has the largest financial interest under Lax/Olsten factors; presumptively lead. |
| Whether HMEPS has standing to sue under the Securities Exchange Act | HMEPS is the beneficial holder with standing despite NP relationships. | McHardy argues lack of independent ownership and direct control of shares. | HMEPS has standing; the beneficial ownership approach controls. |
| Whether HMEPS is typical and adequately represents the class | HMEPS’s claims arise from same course of events and rely on fraud-on-the-market theory. | HMEPS may have unique defenses or reliance differences due to NP relationship. | HMEPS is typical and adequately represents the class. |
| Whether HMEPS is an adequate lead-plaintiff and lead-counsel should be approved | HMEPS’s counsel is experienced; institutional leadership preference supports appointment. | No substantive challenge presented to HMEPS’s adequacy. | HMEPS is adequate; Bernstein Liebhard LLP approved as Lead Counsel. |
Key Cases Cited
- W.R. Huff Asset Mgmt. Co. v. Deloitte & Touche L.L.P., 549 F.3d 100 (2d Cir. 2008) (standing may be transferred to a beneficial holder for class action)
- In re Olsten Corp. Sec. Litig., 3 F. Supp. 2d 286 (E.D.N.Y. 1998) (Lax/Olsten factors for largest financial interest and lead plaintiff)
- In re Cendant Corp. Litig., 264 F.3d 201 (3d Cir. 2001) (lead plaintiff selection and adequacy framework)