Section 18 "Eyeball Reliance" Claim Brought to the SPAC Fight
As my Mintz colleague, Peter Saparoff, suggested a few years back, Section 18 of the Securities Exchange Act of 1934, "while seldom used in the past, has been increasingly used by institutional investors in suits against banks and other entities." In the article linked, Peter noted some of the advantages (and limitations) of utilizing Section 18 to pursue claims where a plaintiff has relied on alleged material misleading statements to its detriment.
In a case filed earlier this week in the U.S. District Court for the Southern District of Texas, in addition to its Section 10(b), 20(a) and 14(a) (and common law fraud) claims, plaintiffs also alleged that defendant Alta Mesa, certain management and board of director defendants all violated Section 18 of the Exchange Act. Per the Complaint, "an investment analyst working on behalf of Plaintiffs read and actually relied upon information contained in Alta Mesa’s 2017 Form 10-K (to the extent that Form 10-K was on file with the SEC at the time) in making each purchase of Alta Mesa common stock. In ignorance of the falsity of Defendants’ statements, or of the true facts, Plaintiffs purchased Alta Mesa common stock in actual, justifiable, eyeball reliance upon the representations made by Alta Mesa, the Management Defendants, and the Board Defendants."
With core securities class action filings involving SPACs on pace to exceed last years all time high total of 33 (see Cornerstone Securities Class Action Filings 2022 Mid Year Assessment ), it will be interesting to see what old and new tools plaintiffs continue to utilize in prosecuting these cases.
"Indeed, Defendants’ misconduct included directly misleading Orbis’ investment advisors during numerous in-person meetings and calls. Orbis relied to its detriment on what Defendants misrepresented to Orbis’ investment advisors during these meetings in purchasing and holding Alta Mesa securities."