(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

Press Releases Misleading, Officers "Control Persons"

A shareholder class action alleging violations of Section 10(b), Rule 10b-5, and Section 20(a) of the Exchange Act survived a motion to dismiss in district court (DC NH). The class claimed that the company issued numerous false or misleading press releases regarding product orders and existing contracts with another company that was engaged in the production of lasers for the government, and that they were injured when the inaccuracy of the press releases was disclosed. In denying the motion to dismiss, the court first held that the class had adequately alleged loss causation by claiming that the company's stock dropped fifteen percent following the SEC's announcement that they were commencing an investigation into the accuracy of the press release.

The court stated that loss causation was shown even though the company itself did not make the disclosure because the U.S. Supreme Court's Dura Pharmaceuticals, Inc. v. Broudo standard (2005 CCH Dec. ¶93,218) for loss causation did not mandate that the source of the misrepresentation must be the source of the corrective disclosure. The court also held that the press releases did in fact contain misleading statements because the company either knew the information being issued to the public was false, or had reason to know that the information was false.

Lastly, the court held that the company's senior executives were control persons for liability purposes under Section 20(a). The elements of a Section 20(a) claim include an underlying violation of the federal securities laws and control of the primary violation by the defendant. Because the class adequately alleged an underlying violation of Section 10(b), the officers were considered control persons because they were responsible for the day to day operations of the company, directed the drafting of the press releases, and were in a position to review the releases prior to being publicly issued.

In re StockerYale Securities Litigation (DC NH) is reported at ¶93,977.