In this edition of Dechert’s Securities & Derivative Litigation Quarterly Update, we:

• Examine a major Ninth Circuit decision affirming dismissal of a Section 14(a) derivative action based on a forum-selection clause;
• Highlight the Third Circuit’s adoption of the Omnicare standard for securities fraud claims;
• Consider a Delaware Court of Chancery post-trial opinion holding in favor of a buyer who walked away from a merger based on a minor breach of representations and warranties;
• Review the steady pace of filings in cryptocurrency securities class actions;
• Provide an update on recent cybersecurity-related securities class actions;
• And provide a refresher on a flurry of OnPoints concerning recent decisions in the Delaware Court of Chancery.

Ninth Circuit Decision Affirms Dismissal Based on Forum-Selection Clause, Maintaining Circuit Split

In our August 2022 and November 2022 editions of the Quarterly Update, we reported on an emerging circuit split on the issue of whether a forum-selection clause in a corporate bylaw providing that the Delaware Court of Chancery was the exclusive jurisdiction for derivative claims was enforceable against derivative claims brought under Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). Because Section 27 of the Exchange Act gives federal courts exclusive jurisdiction over Section 14(a) claims, enforcing the bylaw provision would effectively prohibit a Section 14(a) derivative action from being brought in any forum. In Seafarers Pension Plan ex rel. Boeing Co. v. Bradway,¹ the Seventh Circuit held that the provision was invalid as applied to a Section 14(a) derivative action. After a Ninth Circuit panel went the other way,² the Ninth Circuit agreed to rehear the matter en banc.³ In a 6-5 decision in Lee v. Fisher,⁴ the en banc Ninth Circuit upheld the provision as applied to a Section 14(a) derivative action, cementing a circuit split on this important issue.

In affirming the district court’s dismissal of the complaint, the Ninth Circuit turned away several challenges to the forum-selection clause. First, the court rejected the argument that the provision was tantamount to an advance waiver of enforcement of the company’s obligations under Section 14(a) and Rule 14a-9, which would be unenforceable under the anti-waiver provision in Section 29 of the Exchange Act.⁵ The court reasoned that the forum-selection provision did not waive compliance with the substantive obligations imposed by Section 14(a) and Rule 14a-9 because the plaintiff could still enforce those obligations by means of a direct action in federal court.⁶ Second, the court held that there was no strong public policy favoring a federal forum that would preclude enforcement of the bylaw provision.⁷ Finally, parting ways with the Seventh Circuit, the court rejected the argument that the forum-selection provision was invalid under Section 115 of the Delaware General Corporation Law (“DGCL”), which authorizes the use of specified forum-selection clauses.⁸ The Ninth Circuit concluded that Section 115, as construed by the Delaware Supreme Court, applies only to claims brought under Delaware, rather than federal, law, and does not serve as an outer limit of allowable forum-selection clauses under Section 109(b) of the DGCL,⁹ which governs the subjects that bylaws are permitted to address.¹⁰

The Ninth Circuit’s en banc decision is a favorable development for companies that have adopted bylaws channeling derivative suits to the Delaware Court of Chancery to avoid the costs and burdens associated with numerous stockholders challenging a single corporate action in multiple suits in different courts. However, it also confirms a circuit split, and it is unclear how other federal courts, as well as Delaware courts called upon to interpret the DGCL,¹¹ will address this issue or whether the Supreme Court will ultimately resolve the split.

When Is an Opinion an Actionable Misrepresentation? Third Circuit Adopts the Omnicare Standard for Securities Fraud Claims

On June 13, 2023, the Court of Appeals for the Third Circuit held in City of Warren Police and Fire Retirement Stem v. Prudential Financial, Inc. that the framework set forth by the Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund with respect to Securities Act liability for false statements of opinion applies to claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5 (collectively, “Section 10(b)”). Accordingly, an opinion can be actionable in the Third Circuit under Section 10(b) only if it: (1) does not reflect the speaker’s sincerely held views; (2) explicitly contains untrue factual assertions; or (3) implies facts that are untrue without appropriate qualification.

Background Facts

In 2013, Prudential bought 700,000 active life insurance policies from another insurance company (such policies, the “Hartford Block”).¹² Policyholders in the Hartford Block died at a faster rate than anticipated, leading Prudential to add $65 million to its reserves in the second quarter of 2018.¹³ In February 2019, Prudential issued a Form 10-K which stated that its reserves were adequate or even excessive given the prevailing low interest rates.¹⁴ Despite these assurances, in July 2019, Prudential announced that it had increased its reserves by an additional $208 million.¹⁵ The price of Prudential’s stock thereafter fell significantly.¹⁶ Investors then sued Prudential under Section 10(b) for issuing false or misleading statements about, among other things, the adequacy of its reserves.¹⁷

Discussion

After the District of New Jersey dismissed the complaint in its entirety for failing to allege that Prudential had made a material misstatement, Plaintiffs appealed. On appeal, the Third Circuit, for the first time, held that the Omnicare framework applies to Section 10(b) claims. The Third Circuit noted that, while Omnicare concerned Section 11 of the Securities Act (“Section 11”), “every other Court of Appeals to encounter the issue has applied the Omnicare framework for opinion falsity to claims for Rule 10b-5 violations.”¹⁸ The Third Circuit also noted that Section 10(b) and Section 11 use “almost identical language in prohibiting misrepresentations and omissions.”¹⁹ Finally, the Third Circuit explained that applying Omnicare to a Section 10(b) claim would be consistent with prior Third Circuit precedent, which recognized that Section 11 and Section 10(b) “share the same standard of materiality for misleading statements”²⁰ and had previously applied Omnicare to proxy-fraud cases under Section 14(a) of the Securities Exchange Act.²¹

Turning to the facts of the case, the Third Circuit held that Prudential’s representations about the adequacy of its reserve were non-actionable opinions.²² The Third Circuit explained that Plaintiffs had not alleged facts showing that Prudential’s opinions regarding the adequacy of its reserves were not sincerely held. At most, Plaintiffs had alleged that the Hartford Block had experienced negative outcomes in 2018 and 2019.²³ Plaintiffs also failed to allege that Prudential’s opinions regarding the adequacy of its reserves contained an embedded false factual assertion, explaining that “[t]he statement of a likelihood of being over-reserved has only two embedded factual statements: that interest rates were low, and that Prudential held reserves at all,” both of which were undisputed.²⁴ Finally, Plaintiffs failed to allege that Prudential’s opinion implied the existence of undisclosed facts that were untrue.²⁵ Accordingly, although the Third Circuit reversed the District of New Jersey with regard to other statements at issue in the litigation, the Third Circuit held that the statements regarding the adequacy of Prudential’s loss reserves were not actionable.

Takeaway

The Third Circuit’s application of Omnicare to Section 10(b) claims offers clarity to issuers and investors, making an opinion actionable only when it is not sincerely held, expressly embeds untrue factual assertions, or reasonably implies untrue facts without appropriate qualifying language.

Merger Agreement Properly Terminated for Minor Breach of Representations and Warranties

On May 29, 2023, the Delaware Court of Chancery issued an instructive post-trial memorandum opinion in HControl Holdings LLC v. Antin Infrastructure Partners S.A.S.,²⁶ holding that a breach of capitalization representations given by sellers in a merger agreement permitted the buyer to terminate the agreement, even though the likely monetary consequences of the breach were minor in relation to the size of the deal.

The disputed merger involved defendant Antin’s (the Buyers) planned acquisition of a group of privately held broadband companies known as “OpticalTel.” The merger agreement contained standard capitalization representations concerning the ownership of OpticalTel and a bring-down provision that required the capitalization representations to be accurate “in all respects” at the time of closing.²⁷ The record indicated that the selling parties had attempted to include a qualifier for de minimis failures, which the Buyers struck from the draft agreement. Before closing, a disgruntled employee of OpticalTel came forward with a claim that he owned equity in one OpticalTel company, suggesting that the capitalization representation was inaccurate. While the parties and the Court acknowledged that the employee’s claims were “minor relative to the deal value”—approximately five percent of just one OpticalTel company—the Court found that the inaccuracy of the capitalization representation nonetheless constituted a breach of the merger agreement.²⁸ Recognizing the parties’ agreement and that it was not the role of the Court to question the “business wisdom” of the Buyers’ decision to terminate the deal, the Court held that the Buyers were entitled to walk away as a result of the breach and failure of the bring-down closing condition.²⁹

Cryptocurrency Securities Class Actions Continue To Be Filed At A Steady Pace

Background

The combined effects of heightened regulatory scrutiny and growing concerns about market liquidity have contributed to a decline in the cryptocurrency and digital assets market in 2023.³⁰ In previous years, market declines correlated with an increase in the number of crypto-securities class actions filed.³¹ For instance, in 2022—a “bear market” for cryptocurrency—a total of 23 securities class actions involving crypto defendants were filed, 11 of which were filed in the first half of the 2022.³² With 10 securities class action cases filed in the first half of 2023,³³ only one less than the first half of the previous year, this correlative trend has seemingly continued.³⁴ It remains to be seen whether this demonstrates a normalization of such litigation after the tumultuous back half of 2022, or whether litigation will once again ramp up in the final quarters of 2023.

Jurisdiction of Crypto Securities Class Action Cases

At least one crypto-related securities class action case has been filed per month this year: January (2); February (3); March (3); April (1); and May (1).³⁵ As in previous years, some of these cases have been filed in New York: one in the Southern District and two in the Eastern District.³⁶ In a potential departure from last year’s trends, which saw eight cases filed in California district courts, only one case has been filed in a California district court so far in 2023.³⁷ Other jurisdictions hearing crypto securities class actions are the District of Connecticut (1); District of Delaware (1); District of New Jersey (1); District of Massachusetts (1); District of Nevada (1); and Western District of Texas (1).³⁸

Types of Crypto Defendants and Allegations

These cases involve a variety of crypto- and blockchain-related companies, including coin issuers, cryptocurrency exchange platforms, cryptocurrency miners, and even venture capital crypto-investment funds. As expected, the primary issues raised in the complaints included (1) the sale or offering of unregistered securities, i.e. those not registered with the U.S. Securities & Exchange Commission (“SEC”), in violation of §§ 5, 12, and 15 of the Securities Act of 1933 and/or (2) false and/or misleading statements and/or omissions/failures to make proper disclosures, resulting in alleged financial losses for purchasers or investors, in violation of §§ 10(b) and 20(a) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The majority of these cases are still in the pleadings stage of litigation.

A significant number—three of the ten securities class action cases filed so far this year—involve defendants operating cryptocurrency or NFT exchanges or trading and lending platforms.³⁹ For example, in April 2023, a class of shareholders filed an action against Eqonex, alleging that the platform violated §§ 10(a) and 20(a) of the Exchange Act and Rule 10b-5, as well as §§ 5 and 12(a) of the Securities Act.⁴⁰ Specifically, plaintiffs claim that Eqonex entered into a partnership with Bifinity, giving Bifinity the right to appoint new Eqonex leadership in exchange for a $36 million loan.⁴¹ The news about the agreement purportedly prompted a 22% jump in Eqonex’s share price.⁴² Plaintiffs alleged that in August of 2022, however, Eqonex issued a press release announcing that it would be closing its exchange platform to reduce operating costs, purportedly leading to an 18% drop in share price.⁴³ Plaintiffs then alleged that Eqonex further assured investors that this decision would improve the company’s financial position.⁴⁴ However, in November 2022, the company revealed that it was in breach of the loan agreement with Bifinity and that it was consequently seeking a waiver.⁴⁵ On this news, Eqonex’s share price purportedly further dropped by 48%.⁴⁶ Later that month, the company announced that it was being delisted from the NASDAQ exchange.⁴⁷ This resulted in a 34% drop in the share price of Eqonex.⁴⁸ Shareholders filed suit, claiming that Eqonex made a series of material misrepresentations to investors, alleging that Eqonex had no interest in using the partnership with Bifinity to strengthen its exchange platform technology, it had no way of paying Bifinity back for the loan, and had no intention of ever consummating the merger with Bifinity.⁴⁹ As a result of a combination of these purported misrepresentations, the share price plummeted from $1.79 to $0.093 between August and November 2022, thereby damaging investors.⁵⁰

Three cases were also brought against crypto-mining companies.⁵¹ For example, in March 2023, a class of shareholders filed suit against Marathon Digital Holdings, a crypto-mining company, for securities fraud under §§ 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.⁵² In particular, the plaintiffs claim that Marathon overstated the efficacy of its internal controls over disclosure and financial reporting, thus misrepresenting the company’s revenues and costs of revenue.⁵³ After Marathon later disclosed certain accounting errors contained in previously issued financial statements, as well as the company’s failure to comply with specific calculation methods, Marathon’s share prices fell 8.31%.⁵⁴

The Fundamental Legal Question Remains: Are Digital Assets Securities?

Whether a cryptocurrency or digital asset meets the definition of a “security” remains an ambiguous legal question. The lack of guidance from the SEC on when a cryptocurrency or digital asset is considered a security has made it difficult for crypto businesses to navigate this regulatory landscape. Many regulatory enforcement actions brought by the SEC have alleged that companies failed to register cryptocurrency or digital assets, as required by the Securities Act. For example, last month the SEC filed suit against Coinbase in the U.S. District Court for the Southern District of New York, alleging that through its “Staking Program,” which pools together investors’ crypto assets and then “stakes” them for rewards to enable investors to earn financial returns, Coinbase engaged in the sale of unregistered securities in violation of §§ 5(a) and 5(c) of the Securities Act.⁵⁵ But in response, Coinbase took the unusual step of accompanying its answer with a letter notifying the court that it intended to file a motion for judgment on the pleadings, arguing that its assets and activities fall outside the SEC’s regulatory authority.⁵⁶ It asserted that only Congress could confer authority to regulate crypto exchanges, and Congress had not done so—which, Coinbase noted, the SEC Chair had implicitly acknowledged in 2021 in Congressional testimony.⁵⁷

Regardless of whether Coinbase succeeds in these arguments, this litigation highlights the lack of clarity regarding whether or when securities laws apply to digital assets. Indeed, Coinbase and other participants in the crypto market have publicly requested that the SEC issue more formal rulemaking, or Congress pass legislation, clarifying whether digital assets are securities.⁵⁸ While these has been no clear guidance from Congress or the SEC regarding these fundamental questions about the SEC’s ability to regulate the crypto industry, the courts may be fashioning their own answers.

Just fifteen days after Coinbase filed its letter, the U.S. District Court for the Southern District of New York—the same district where Coinbase is pending—issued a ruling clarifying how and when digital assets could be considered securities subject to SEC regulation.⁵⁹ In SEC v. Ripple Labs, Inc., Judge Torres held that Ripple’s sales of XRP digital tokens were “investment contracts,” a type of securities regulatable by the SEC—but only in certain contexts. The Court held that, under SEC v. W.J. Howey Co., Ripple’s sales of XRP to “institutional buyers” pursuant to written contracts constituted “investment contracts” regulatable by the SEC, and that Ripple had thus engaged in the “unregistered offer[s] and sale[s] of investment contracts in violation of Section 5 of the Securities Act.”⁶⁰ However, “programmatic sales” of XRP on digital asset exchanges did not.⁶¹ The critical difference was that institutional buyers—a category that included hedge funds and other sophisticated parties buying directly from Ripple—would have purchased XRP “with the expectation that they would derive profits from Ripple’s efforts” to increase XRP’s value.⁶² Programmatic buyers, on the other hand, purchased XRP through “blind bid/ask” transactions in which neither the buyer nor the seller knew the identity of the other.⁶³ Because these programmatic buyers did not know they were buying XRP from Ripple, they could not have expected to derive profit from their purchase “from Ripple’s efforts.”⁶⁴ The Court also noted the absence of other factors cutting in favor of finding “a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”⁶⁵ For instance, Ripple’s programmatic sales of XRP were not made pursuant to contracts containing “lockup provisions, resale restrictions, indemnification clauses, or statements of purpose”; Ripple did not circulate XRP promotional materials broadly on digital asset exchanges; and there was no evidence that programmatic buyers, who were “generally less sophisticated” than institutional investors, would have been aware of Ripple’s marketing and public statements connecting XRP’s price to its own efforts.⁶⁶

While Ripple made some headway towards answering whether, when, and how digital assets are securities, it left fundamental questions open. Critically, the Court did not address “whether secondary market sales of XRP constitute offers and sales of investment contracts.”⁶⁷ However, it is difficult to imagine that the Court’s analysis of programmatic crypto sales will not be influential to those who ultimately decide the SEC’s ability to regulate digital assets on crypto exchanges. Indeed, the Court states that programmatic buyers “[stand] in the same shoes as a secondary market purchaser” and emphasizes that programmatic buyers are generally less sophisticated than institutional investors—just like the retail investors who populate crypto exchanges.⁶⁸

Together, Coinbase and Ripple illustrate how quickly the litigation landscape is evolving for the crypto industry. All the while, the SEC appears to be ramping up litigation against players in the crypto markets, filing 11 new actions against crypto companies and executives in 2023.⁶⁹ Industry players should keep an eye on the courts as these cases play out, and prepare for potential regulatory actions in the upcoming years—or, possibly, months.

Conclusion

While the crypto securities class action litigation trends in 2023 so far have not significantly departed from the trends in 2022, it is important to note that the crypto market has not yet entered a bull market. It will be interesting to examine how these litigation trends shift in the second half of the year if crypto re-enters a bull market.

Anticipated Surge of Cybersecurity-Related Securities Class Actions Yet to Take Shape

Despite lower-than-expected volumes, cybersecurity-related securities class action filings remain closely watched. In 2022, there were four cybersecurity filings, down from seven in 2021.⁷⁰ Thus far this year, two securities class actions have been filed alleging data breaches or securities vulnerabilities. The first was filed on March 23, 2023, alleging violations of Sections 10(b) and 20(a) of the Exchange Act against Dish Network (“Dish”), which provides pay-TV services, and certain of its officers and directors.⁷¹ The plaintiffs there alleged that the company, in public statements and SEC filings, overstated its operational efficiency and maintained a deficient cybersecurity and information technology infrastructure and that the company was unable to properly secure customer data, leaving it vulnerable to access by malicious third parties.⁷² The plaintiffs further alleged that such cybersecurity deficiencies also both rendered Dish’s operations susceptible to widespread service outages and hindered the company’s ability to respond to such outages.⁷³ The plaintiffs alleged that Dish disclosed earlier in the year that it had a “network outage,” but later publicly acknowledged that a “cyber-security incident” caused the outage and potentially compromised user personal information, purportedly leading to a 6% decline in stock value.⁷⁴

The second securities class action was filed in April against Block, Inc. f/k/a Square, Inc. (“Block”), a global technology company with a focus on financial services, as well as Block co-founders Jack Dorsey and Jim McKelvey, alleging violations of Sections 12(a)(2) and 15 of the Securities Act.⁷⁵ In this case, the plaintiffs alleged that Block disclosed for the first time that a material data breach compromising the personal private data of millions of the company’s customers had taken place in December 2021, prior to the company’s January 31, 2022 acquisition of Afterpay.⁷⁶ The plaintiffs further alleged, among other things, that the company maintained an inadequate system of internal controls and caused the price of Block’s stock to fall precipitously.⁷⁷ Both cases are still in the early stages and no motions to dismiss have been filed.

Though a surge in cyber-related securities class actions has not unfolded as predicted, commentators speculate that this may be due to the trend of such cases being dismissed.⁷⁸ Recently, in In re Okta, Inc. Securities Litigation, 22-CV-02990-SI, 2023 WL 2749193, at *4 (N.D. Cal. Mar. 31, 2023), the Northern District of California granted the defendants’ motion to dismiss claims arising from cybersecurity-related allegations, but denied defendants’ motion to dismiss with respect to other allegations. In that case, plaintiff shareholders filed a securities class action lawsuit against Okta, a data security company, and certain of its directors and officers, arising out of two main events and their aftermath: Okta’s acquisition of Auth0, Inc. in May 2021, and a data security incident that occurred in January 2022 that went undisclosed until late March 2022. Through confidential witness testimony, the plaintiffs alleged that the company misled investors by masking its turbulent attempt to integrate Auth0 and the fact that Okta liberally granted employees unfettered access to user information without adequate security protocols, opening the doorway for a group of hackers to access user data in January 2022.⁷⁹

Interestingly, the court dismissed plaintiffs’ cybersecurity-related claims, but allowed certain claims made in earnings calls relating to the status of the integration to proceed. Specifically, the court found that Okta’s statements regarding its commitment to data security were not actionable, since vague and generalized corporate commitments, aspirations, or puffery cannot constitute misstatements under Section 10(b) and Rule 10b-5(b).⁸⁰ Similarly, it found that plaintiffs had failed to allege particularized facts showing that the CEO’s representations about Okta’s security protocol were materially false or misleading when made.⁸¹ Rejecting the plaintiffs’ core operations theory, the court dismissed plaintiffs’ claim related to Okta’s allegedly misleading risk disclosure, as the complaint failed to allege sufficient facts showing what the individual defendants knew about the security incident at the time of filing.⁸² However, the court allowed the plaintiffs to proceed on grounds unrelated to the data breach, finding that certain positive statements made by the individual defendants in earnings calls about the status of its integration with Aut0 went beyond puffery (i.e. “providing a concrete description of the sales team integration”) and contradicted information known by the company at the time and alleged through the use of CWs (satisfying the scienter requirement).⁸³

Cybersecurity cases continue to remain of interest despite a growing record of defendant victories. In re Okta illustrates the difficulty plaintiffs encounter when trying to recover under Section 10(b) of the Exchange Act and SEC Rule 10b-5 after unexpected data breaches. The decline in these types of filings may demonstrate that the alluring effect of mega-settlements like the $149 million deal struck with Equifax in 2020 is wearing off.⁸⁴

A Recap of Important Developments in Delaware Courts

The quarter has also seen several developments that we have covered in real-time through OnPoints:

• The Delaware Supreme Court affirmed the Court of Chancery’s finding that Tesla’s acquisition of SolarCity satisfied review for entire fairness.
• The Court of Chancery found in favor of Oracle founder Larry Ellison and CEO Safra Catz in litigation arising from Oracle’s acquisition of NetSuite, holding that a stockholder’s ability to exercise control without actually exercising it does not trigger entire fairness review.
• The Court of Chancery offered guidance on the enforceability of contractual waivers not to sue for breach of fiduciary duty.
• The Court of Chancery held that Corwin cleansing was inapplicable to board-entrenching actions.
• The Court of Chancery barred a stockholder from inspecting books and records related to an ESG-related decision made by the Walt Disney Company Board of Directors.

Footnotes:

1. 23 F.4th 714 (7th Cir. 2022).
2. Lee v. Fisher, 34 F.4th 777 (9th Cir. 2022).
3. Lee ex rel. The Gap, Inc. v. Fisher, 54 F.4th 608 (9th Cir. 2022).
4. Lee v. Fisher, 70 F.4th 1129 (9th Cir. 2023).
5. Id. at 1139–40.
6. Id. at 1140.
7. Id. at 1151.
8. Section 115 states in relevant part that a corporation’s “bylaws may require, consistent with applicable jurisdictional requirements, that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts in this State.” Del. Code Ann. tit. 8, § 115 (West 2015).
9. Section 109(b) states in relevant part that “[t]he bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees.” Del. Code Ann. tit. 8, § 109(b) (West 2015).
10. Lee v. Fisher, 70 F.4th at 1154–56.
11. Since the decision, at least one federal court has followed the Ninth Circuit’s lead, dismissing a shareholder derivative claim on the basis of a Delaware Chancery Court forum provision. Sobel v. Thompson, No. 1:21-CV-272-RP, 2023 WL 4356066, at *1 (W.D. Tex. July 5, 2023). While the underlying claim was based on Section 10(b) of the Exchange Act rather than Section 14, the court’s analysis was similar. In its opinion, the court explicitly departs from the Seventh Circuit’s holding, addressing Section 115 of the DGCL, policy interests, and the Plaintiff’s ability to bring a direct action in its analysis of the enforceability of the forum-selection provision.
12. City of Warren Police & Fire Ret. Sys. v. Prudential Fin., Inc., 21-1147, 2023 WL 3961128, at *2 (3d Cir. June 13, 2023).
13. Id.
14. Id.
15. Id. at *3.
16. Id.
17. Id.
18. Id. at *8 (citing, e.g., Emps.' Ret. Sys. of the City of Baton Rouge & Par. of E. Baton Rouge v. MacroGenics, Inc., 61 F.4th 369, 386–91 (4th Cir. 2023); Constr. Indus. & Laborers Joint Pension Tr. v. Carbonite, Inc., 22 F.4th 1, 7 (1st Cir. 2021); Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307, 1322 n.7 (11th Cir. 2019); City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 616 (9th Cir. 2017); Tongue v. Sanofi, 816 F.3d 199, 209–10 (2d Cir. 2016); Nakkhumpun v. Taylor, 782 F.3d 1142, 1159 (10th Cir. 2015)).
19. Id.
20. See In re Merck & Co., Inc. Sec. Litig., 432 F.3d 261, 273–75 (3d Cir. 2005) (reaffirming that “[s]ections 11 and 10(b) share the materiality element and the [same] materiality definition”); see also In re Donald J. Trump Casino Sec. Litig.-Taj Mahal Litig., 7 F.3d 357, 369 (3d Cir. 1993).
21. See Jaroslawicz v. M&T Bank Corp., 962 F.3d 701, 717 & n.16 (3d Cir. 2020).
22. See City of Warren Police & Fire Ret. Sys., 2023 WL 3961128, at *9-10.
23. Id. at *9.
24. Id.
25. Id.
26. HControl Holdings LLC v. Antin Infrastructure Partners S.A.S., No. 2023-0283-KSJM, 2023 WL 3698535, at *1 (Del. Ch. May 29, 2023).
27. Id. at *1.
28. Id. at *2.
29. Id.
30. See, e.g., Wayne Duggan, Why Is Crypto Down Today?, Forbes, https://www.forbes.com/advisor/investing/cryptocurrency/why-is-crypto-down-today/ (last updated May 12, 2023, 11:16 AM).
31. Chris Opfer et. al., Crypto Lawyers Bet Big on Class Action Lawsuits as Market Slides, Bloomberg Law, https://news.bloomberglaw.com/business-and-practice/crypto-lawyers-bet-big-on-class-action-lawsuits-as-market-slides; Farshad Ghodoosi, Crypto Litigation: An Empirical View, 40 Yale J. on Reg. 87, 88 (2022), https://www.yalejreg.com/bulletin/crypto-litigation-an-empirical-view/#:~:text=In%20the%20early%20part%20of,since%20the%20start%20of%202020.
32. Securities Class Action Clearinghouse a collaboration with Cornerstone Research: Cryptocurrency Litigation, STANFORD LAW SCHOOL, https://securities.stanford.edu/current-trends.html (last visited July 7, 2023).
33. Id.
34. See Cryptocurrency Securities Class Action Litigation 2022 Year Review (Mar. 27, 2023), https://www.dechert.com/knowledge/onpoint/2023/3/cryptocurrency-securities-class-action-litigation-2022-year-revi.html; see also Securities and Derivative Litigation: Quarterly Update (May 9, 2023), https://www.dechert.com/knowledge/onpoint/2023/5/securities-and-derivative-litigation--quarterly-update.html.
35. Securities Class Action Clearinghouse a collaboration with Cornerstone Research: Cryptocurrency Litigation, STANFORD LAW SCHOOL, https://securities.stanford.edu/current-trends.html (last visited July 7, 2023).
36. Id.
37. Id.
38. Id.
39. See Greene v. Prince, 23-CV-01165 (D.N.J. Feb. 28, 2023); Zhao v. Eqonex Ltd., 23-CV-03346 (S.D.N.Y Apr. 20, 2023); DuFoe v. DraftKings Inc., 1:23-cv-10524-DJC (D. Mass. Mar. 9, 2023).
40. Zhao v. Eqonex Ltd., 23-CV-03346 (S.D.N.Y Apr. 20, 2023), CAC at ¶ 2.
41. Id. ¶ 3.
42. Id. ¶ 4.
43. Id. ¶ 14.
44. Id. ¶ 15.
45. Id.
46. Id.
47. Id. ¶ 16.
48. Id. ¶ 19.
49. Id.
50. Id. ¶ 16.
51. Murphy v. Argo Blockchain PLC, 23-CV-00572 (E.D.N.Y. Jan. 26, 2023); Pelham v. VBit Tech. Corp., 23-CV-00162 (D. Del. Feb. 13, 2023); Moreno v. Marathon Digit. Holdings, Inc., 23-CV-00470 (D. Nev. Mar. 30, 2023).
52. Moreno v. Marathon Digit. Holdings, Inc., 23-CV-00470 (D. Nev. Mar. 30, 2023), CAC at ¶ 1.
53. Id. ¶ 13.
54. Id. ¶ 15.
55. Compl. ¶ 3, SEC v. Coinbase, Inc., 23-CV-04738, Dkt. 1 (S.D.N.Y. June 6, 2023).
56. Letter, SEC v. Coinbase, Inc., 23-CV-04738, Dkt. 23 (S.D.N.Y. June 28, 2023).
57. Id.
58. See Coinbase, Petition for Rulemaking – Digital Asset Securities Regulation (July 21, 2022).
59. SEC v. Ripple Labs, Inc., No. 1:20-cv-10832-AT-SN (S.D.N.Y. July 13, 2023).
60. Ripple, Slip Op. at 16-22; see also Howey, 328 U.S. 293, 298–99 (1946) (providing that an “investment contract” for purposes of the Securities Act is “a contract, transaction[,] or scheme whereby a person [(1)] invests his money [(2)] in a common enterprise and [(3)] is led to expect profits solely from the efforts of the promoter or a third party.”)
61. Ripple, Slip Op. at 23-25. The Court also held that distributions of XRP to employees as compensation and to third parties to develop new applications for XRP did not constitute “investment contracts.” Id. at 26-27.
62. Id. at 4, 19.
63. Id. at 4.
64. Id. at 24.
65. Id. (citing United Hous. Found., Inc. v. Forman, 421 U.S. 837, 852 (1975)).
66. Id. at 24-25.
67. Id. at 23 n.16.
68. See id. at 23, 25.
69. See SEC.gov, “Crypto Assets and Cyber Enforcement Actions,” U.S. Securities and Exchange Commission, (last visited July 10, 2023).
70. Cornerstone Research, Securities Class Action Filings, 2022 Year in Review, available at https://www.cornerstone.com/wp-content/uploads/2023/05/Securities-Class-Action-Filings-2022-Year-in-Review.pdf
71. See Complaint, Jaramillo v. Dish Networks Corp. et al., 23-cv-00734 (D. Colo. Mar. 23, 2023).
72. Id. ¶ 3.
73. Id.
74. Id. ¶¶ 4-6.
75. Complaint, Official Intelligence Pty Ltd., et al. v. Block, Inc., et al., 23-cv-02789 (S.D.N.Y. April 3, 2023), ¶ 4.
76. Id. ¶¶ 30-34.
77. Id. ¶ 2.
78. See, e.g., Kevin M. LaCroix, The Top Ten D&O Stories of 2022, The D&O Diary (Jan. 3 2023), https://www.dandodiary.com/2023/01/articles/director-and-officer-liability/the-top-ten-do-stories-of-2022/.
79. In re Okta, Inc. Sec. Litig., 22-CV-02990-SI, 2023 WL 2749193, at *4 (N.D. Cal. Mar. 31, 2023).
80. Id. at *15.
81. Id. at *16–17.
82. Id. at *18 (citing Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1062 (9^th Cir. 2014)) (“Proof under [the core operations] theory is not easy. A plaintiff must produce either specific admissions by one or more corporate executives of detailed involvement in the minutia of a company's operations, such as data monitoring, ...; or witness accounts demonstrating that executives had actual involvement in creating the fraud”). The court also dismissed plaintiffs’ claims relating to Okta’s CEO’s public statement that the company was committed to reaching $4 billion annual revenue (despite active customer loss) finding plaintiffs failed to allege with “particularity regarding how much sales Okta lost and when.” Id. at *19.
83. Id. at *13 (internal citation omitted).
84. Kevin M. LaCroix, Equifax Data Breach-Related Securities Suit Settled for $149 Million, The D&O Diary (Feb. 17 2020), https://www.dandodiary.com/2020/02/articles/securities-litigation/equifax-data-breach-related-securities-suit-settled-for-149-million/.