81 F. Supp. 3d 902
N.D. Cal.2015Background
- Velti securites class action covering Jan 27, 2011–Aug 20, 2013; Velti announced $111M AR write-off on Aug 20, 2013.
- Receivables were classified as accrued contract receivables or trade receivables; DSO measured only trade receivables before May 2012.
- CFRA report (May 2012) criticized Velti’s DSO methodology; Velti switched to comprehensive DSO thereafter.
- Velti’s IPO (Jan 27, 2011) and SPO (June 14, 2011) included Baker Tilly audit reports; registration statements claimed no significant bad debt and all receivables were historically collected.
- Deloitte conducted Greece/Cyprus receivables review in 2013, recommending a >$100M write-off; Velti disclosed the write-off on Aug 20, 2013 and later filed for bankruptcy in Nov 2013 (US) and Aug 2014 (EU).
- Motions to dismiss were granted with leave to amend on certain theories, and sealing motions were denied; subsequent procedural posture consolidated four prior actions and limited active defendants to Baker Tilly and Underwriters.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 11 claims are time-barred | Plaintiffs allege discovery occurred after May 2012 disclosures but before May 2012; claims not time-barred | Defendants argue discovery began May 2012 triggering untimeliness | Partial: DSO-based claims time-barred; other Section 11 claims not time-barred and denied to amend. |
| Whether Section 11 claims sound in fraud requiring Rule 9(b) | ACC alleges a unified fraud theory against Baker Tilly and Underwriters | Claims do not meet Rule 9(b) pleading standards | Section 11 claims pleaded as sounding in fraud are subject to Rule 9(b). |
| Whether the Underwriters have Section 12(a)(2) standing and pleading | Underwriters allegedly sold IPO/SPO securities and stood as statutory sellers | Standing and pleading insufficient or appropriate to dismiss | Section 12(a)(2) claims DISMISSED WITH LEAVE TO AMEND for lack of proper pleading; standing arguable but claims dismissed. |
| Whether Section 10(b) claims against Baker Tilly are adequately pleaded | Alleged falsity of Baker Tilly’s audit reports regarding reserves and GAAP | Falsity and scienter not pleaded with required specificity under Rule 9(b) and PSLRA | Dismissed with leave to amend; falsity/scienter not adequately pled. |
Key Cases Cited
- In re Daou Sys., Inc. Sec. Litig., 411 F.3d 1006 (9th Cir. 2005) (material misstatement or omission standard; no scienter requirement for Section 11)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility pleading standard)
- GlenFed, 42 F.3d 1549, 42 F.3d 1541 (9th Cir. 1994) (ambit of misrepresentation and objective falsity in reserves)
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (Rule 9(b) pleading in securities cases; due diligence considerations)
- Freidus v. Barclays Bank PLC, 734 F.3d 132 (2d Cir. 2013) (timeliness and disclosures affecting discovery of claims)
- In re Countrywide Fin. Corp. Sec. Litig., 588 F. Supp. 2d 1132 (C.D. Cal. 2008) (section 11/ Rule 9(b) pleading standards in securities claims)