On November 15, 2019, Judge Denise Cote of the United States District Court for the Southern District of New York denied a motion seeking to revive claims under the Securities Exchange Act of 1934 against the underwriter of a Regulation A+ offering. In Re Longfin Corp. Sec. Class Action Litig., No. 18 CV 2933(DLC), 2019 WL 6045308 (S.D.N.Y. Nov. 15, 2019). As noted in our prior post, on July 29, 2019, the Court granted the underwriter's motion for reconsideration and dismissed the claims against it with prejudice for failure to adequately allege scienter. In response to that ruling, plaintiffs filed a motion for relief from the prior order under Rule 60(a)(2) of the Federal Rules of Civil Procedure and sought to file a new amended complaint, based on the contention that plaintiffs had identified new evidence. Judge Cote held, however, that the proposed new allegations still failed to adequately allege scienter.
Judge Cote explained that in order to receive relief from a final judgment, plaintiffs had to meet an "onerous standard" showing that "(1) the newly discovered evidence was of facts that existed at the time of trial or other dispositive proceeding, (2) the movant must have been justifiably ignorant of them despite due diligence, (3) the evidence must be admissible and of such importance that it probably would have changed the outcome, and (4) the evidence must not be merely cumulative or impeaching." Id. at *3 (citing United States v. Int'l Bhd. of Teamsters, 247 F.3d 370, 392 (2d Cir. 2001)). Plaintiffs argued that they had identified various information from the issuer including its bank accounts, general ledger, the control log for the issuer's transfer agent for the issuer's common stock, monthly statements for the issuer's escrow account, and wire transactions performed by the issuer. Id. But the Court noted that "little of the relevant evidence is newly discovered" and that none of the evidence would have changed the outcome of the previous ruling. Id.
The Court first observed that little of the proposed new evidence related at all to the underwriter, and therefore could not have changed the Court's prior dismissal of claims against the underwriter. Id. As for allegations that did relate to the underwriter—which were similar to allegations in the prior complaint—plaintiffs argued that the control log revealed that stock had been transferred to insiders affiliated with the issuer. However, the Court held that the log did not give rise to an inference that the underwriter knew that list contained the names of insiders or that the issuer was impermissibly counting insiders' shares toward minimum listing requirements. Id. As for other bank records and escrow account records that also theoretically "revealed" such insider transfers, the Court found that plaintiffs still failed to show that the underwriter had received these records. Id.
Finally, the Court addressed plaintiffs' contention that their claims against the underwriter should not have been dismissed with prejudice. Id. The Court explained that plaintiffs were "given numerous opportunities and extensions to amend their complaint in response to the deficiencies identified" by the underwriter in its motion to dismiss or for reconsideration. Id. And the Court had warned that plaintiffs were unlikely to receive a further opportunity to amend their complaint before plaintiffs filed their second amended complaint, and noted that plaintiffs failed to request in response to the underwriter's motion to dismiss or for reconsideration an opportunity to file yet another amended complaint. Id. Therefore, the Court denied plaintiffs' motion for relief.
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