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RKS recently defeated a motion to dismiss 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 defense argued, among other things, that the investors’ claims under Section 18 of the Securities Exchange Act of 1934 were time-barred and not tolled by the filing of an earlier securities fraud class action. The court rejected that argument, agreeing with RKS that the class action complaint was sufficient to put Vale on notice of the Section 18 claims.
In doing so, the court acknowledged the importance of Section 18 claims to professional investors who elect to pursue their claims separately from a class action:
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 case and are well situated 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 the defense’s argument that the investors had failed to allege fraudulent intent, finding that the investors’ allegations contained “adequate evidence of conscious misbehavior or recklessness on the part of the individual defendants.” RKS had been able to take the depositions of several former Vale executives to develop the investors’ allegations of recklessness and motive to lie in connection with the tragic collapse of two of Vale’s dams.
Read the opinion here.