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October 2016: Securities Law Victory

October 2016

The firm recently obtained a dismissal of a putative securities class action in the United States District Court for the Central District of California brought by a group of investors against the firm’s client, Amira Nature Foods, Ltd., a global specialty rice company based in India. The allegations in the initial complaint repeated almost verbatim baseless allegations against Amira made by a notorious short-seller in two so-called “investment research” reports, which accused Amira of filing fraudulent financial statements with the U.S. Securities and Exchange Commission (SEC) and engaging in unethical business practices. The investors specifically alleged, among other things, that Amira defrauded them by overstating the revenues reported in its SEC filings by more than 100 percent. The investors filed their putative class action lawsuit one day after the short-seller published its first report attacking Amira and amended their complaint twice thereafter.

In July, the Court issued a detailed 26-page opinion and order dismissing the investors’ second amended complaint without prejudice and granting them leave to amend again within two weeks. Among other things, the Court found that the investors failed to adequately allege how Amira’s disclosures to the SEC misstated, much less overstated, the company’s revenues and failed to plausibly allege that Amira made any false or misleading statements about its business to the SEC. The Court was persuaded that the investors’ heavy reliance on the short-seller reports to plead their claims was insufficient as a matter of law to state a claim under the securities laws and set forth a detailed roadmap for the steps they would need to take to state a plausible claim against Amira. When the investors failed to file a third amended complaint by court-ordered deadline, the Court dismissed the case and entered judgment for Amira.

The Court’s dismissal of the second amended complaint is a significant signal to investors seeking to turn baseless allegations levied against publicly traded companies by short-sellers into securities class actions that doing so is an uphill battle. The Court's decision affirms that accusations of securities law violations conjured up by short-sellers are not on their own a sufficient basis for investors to pursue the companies targeted by the short-sellers.