108 F.4th 1178
9th Cir.2024Background
- Walleye, a hedge fund, sued major Intelsat shareholders—BC Partners, Silver Lake, and board chair David McGlade—for alleged insider trading tied to a November 5, 2019 FCC meeting regarding the C-Band spectrum auction.
- The FCC’s shift from a private to public auction format for the C-Band would significantly impact Intelsat’s finances and future prospects.
- After an FCC meeting reportedly signaling bad news for Intelsat’s private auction proposal, the defendant shareholders executed a large after-hours Intelsat stock sale.
- The complaint alleged that defendants possessed material non-public information from that FCC meeting which was not disclosed to the market before their stock sale.
- The district court dismissed Walleye’s claims for failure to plead facts showing the defendants possessed material non-public information or acted with scienter (fraudulent intent). The dismissal was affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III Standing | Walleye suffered concrete harm from buying at inflated prices while defendants traded on inside information. | Walleye lacked injury and causation, did not buy shares directly from defendants. | Walleye had both Article III and statutory standing. |
| Statutory/Section 20A Standing | Section 20A only requires temporally proximate trades, not direct privity or same market. | Only buyers from the block trade (not public market buyers like Walleye) have standing. | Walleye satisfied Section 20A contemporaneous trading requirement. |
| Possession of Material Non-Public Information | Defendants had access to material non-public information via board access or company ties. | Walleye’s complaint failed to specify what, when, or how information was received; no facts showed possession. | Complaint failed: no particularized facts alleged defendants possessed material non-public information. |
| Materiality | The FCC meeting and info shared materially altered investment facts. | Publicly available info and speculative, non-specific meeting results are not material; info cited was not clearly non-public or significant. | Alleged information was not material; meeting’s existence and vague impressions did not significantly alter public knowledge. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (sets standard for considering facts at motion to dismiss in securities cases)
- Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (elements for Section 10(b) and Rule 10b-5 claims)
- Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 568 U.S. 455 (2013) (materiality standard in securities fraud)
- United States v. O’Hagan, 521 U.S. 642 (1997) (duty to disclose information before trading; insider trading liability)
- TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) (standard for materiality in omission cases)
- Shapiro v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 495 F.2d 228 (2d Cir. 1974) (contemporaneous trading rule in insider trading)