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RKS recently defeated a motion to dismiss filed by Vale S.A. and several of its former officers and directors in a federal securities fraud case pending in the Eastern District of New York. The Defendants argued, among other things, that the Plaintiffs’ claims under Section 18 of the Securities Exchange Act of 1934 were time-barred and not tolled by the filing of an earlier, related securities fraud class action. The Court disagreed, finding that the class action complaint was sufficient to put Defendants on notice of Plaintiffs’ later-filed Section 18 claim and, therefore, that American Pipe tolling applied. The Court also recognized that:
Section 18 claims are difficult to maintain on a classwide basis because they require plaintiffs to show they actually relied on a defendant’s misrepresentation. Institutional investors, by contrast, have the incentives to litigate an individual securities fraud action and are well suited to show actual reliance. Accordingly, institutional investors often choose to opt out of a class action asserting only Section 10(b) claims and file their own cases raising both Section 10(b) and Section 18 claims.
The Court also rejected Defendants’ various scienter challenges, finding that “Plaintiffs allege adequate evidence of conscious misbehavior or recklessness on the part of the individual defendants.” And, although it did not reach the issue of Defendants’ “motive and opportunity,” it found that Plaintiffs’ allegations that “[g]iven the intense focus . . . on the mining industry, and Vale in particular, in the wake of [the earlier dam] collapse, Vale’s insiders allegedly had every incentive to ‘lull its investors into thinking that dam safety remained a priority and that the risk of another dam collapse was being minimized'” would “likely be sufficient.”
The case will now proceed into discovery, and RKS looks forward to continuing to work to recover on behalf of its clients.
Read the opinion here.