Shearman & Sterling LLP | Securities Litigation

Shearman Litigation:  Need-to-Know Litigation Weekly

Welcome to Shearman & Sterling LLP’s Need-To-Know Litigation Weekly, which analyzes notable U.S. decisions, orders and developments each week in areas of Securities Litigation, M&A litigation, and Government/Regulatory Enforcement.  This weekly newsletter is intended to supplement our various publications and thought leadership concerning these important substantive areas.?

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Recent Developments


First Circuit Affirms Dismissal Of Putative Securities Class Action, Finding Public Disclosures Precluded Any Finding Of Intent To Mislead Investors

On May 12, 2017, the United States Court of Appeals for the First Circuit affirmed the dismissal of a putative securities class action against biopharmaceutical company Biogen Inc. and three of its officers. In Re: Biogen Inc. Sec. Litig., No. 16-1976, 2017 WL 1963468 (1st Cir. May 12, 2017). Plaintiffs alleged that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by concealing declining sales of multiple sclerosis drug Tecfidera following the death of a trial patient, leading to a stock drop when the company later reduced its growth forecasts for 2015. The First Circuit, in affirming the prior ruling of United States District Judge F. Dennis Saylor, IV of the United States District Court for the District of Massachusetts dismissing the amended complaint with prejudice, held that although the amended complaint gave rise to a “plausible” inference of scienter on the part of defendants, it did not support a “strong” inference of scienter as required under the heightened pleading requirements of the Private Securities Litigation Reform Act (“PSLRA”).

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Delaware Chancery Court Holds That Well-Pled Unocal Claim Does Not Automatically Excuse Pre-Suit Demand

On May 15, 2017, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court dismissed a shareholder derivative action asserting that the directors of The Williams Companies, Inc. (“Williams”) breached their duty of loyalty in connection with its entry into, and subsequent cancellation of, an agreement to acquire the remaining interest in its affiliate, Williams Partners L.P. (“WPZ”). Ryan v. Armstrong, C.A. No. 12717-VCG (Del. Ch. May 15, 2017). Plaintiff, a Williams shareholder, alleged that Williams’ directors were “motivated . . . by a desire . . . to entrench themselves” when they approved the WPZ acquisition in the context of “acquisition overtures” made toward Williams by another company, Energy Transfer Equity, L.P. (“ETE”). The Court held that allegations of “defensive measures”—even if sufficient to trigger enhanced scrutiny under Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)—do not result in “automatic demand excusal.” Therefore, because demand futility was not otherwise adequately pleaded, the Court granted dismissal under Court of Chancery Rule 23.1 for plaintiff’s failure to make a pre-suit demand on the Williams board to pursue the litigation.

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More Bond Traders Sued By The SEC For Alleged Fraudulent Misrepresentations Relating To MBS Prices

On May 15, 2017, the Securities and Exchange Commission sued two commercial mortgage backed securities (“CMBS”) traders for securities fraud allegedly committed while buying and selling CMBS on behalf of a large broker-dealer during the course of their employment at the firm. SEC v. Chan, S.D.N.Y, 1:17-cv-3605; SEC v Im, S.D.N.Y, 1:17-cv-3613. These are the latest in a slew of recent lawsuits that have been brought by the SEC and DOJ as part of a federal crackdown on allegedly deceptive bond trading practices, but the DOJ is notably absent from this latest case.

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