- Court: 9th Circuit Court of Appeals Archives
- Area(s) of Law: Corporations
- Date Filed: 08-23-2011
- Case #: 10-55401
- Judge(s)/Court Below: District Judge Gwin for the Court; Circuit Judges Fletcher and Smith
- Full Text Opinion
Appellant WPP Luxembourg Three Sarl (WPP) appeals the district court’s 12(b)(6) dismissal of their complaint alleging violations of the Securities and Exchange Act of 1934. WPP claims that Spot Runner and its founders solicited WPP to buy more shares while not disclosing that the executives of the company were selling their own personal shares despite a contractual obligation to do so. The Ninth Circuit reversed the district courts ruling and held that WPP sufficiently alleged a Section 10b -5(b) liability. Due to the close relationship between WPP and the founders and the agreement to inform the parties of stock sales suggest that a duty to disclose may exist. Furthermore, the Court concluded that the complaint sufficiently alleges facts demonstrating a “strong inference” of scienter or fraudulent intent because the founders knew of the notice requirement in the agreement and repeatedly ignored it. The Court also found that WPP sufficiently alleged loss causation without specific numbers because based on the “pump and dump” actions other investors would be unwilling to buy shares, leaving them worthless. As to the fraudulent scheme claim, the Court affirmed the holding in Desai and extended it to this case. The Court found Spot Runner would only be liable for a fraudulent scheme under 10b-5(a) or (c) if the scheme included conduct of omission or misrepresentation beyond what was alleged in the 10b-5(b) claim. Here no such allegations were present in WPPs complaint. AFFIRMED in part and REVERSED in part.