Central District of California Holds That Anonymous Blog Post Based on Publicly Available Information Can Be Material and Constitute a Corrective Disclosure

Skadden, Arps, Slate, Meagher & Flom LLP

In re Banc of Cal. Sec. Litig., no: SACV 17-00118 AG (DFM) (C.D. Cal. Sept. 6, 2017)

Judge Andrew J. Guilford denied the defendant’s motion to dismiss a putative securities fraud class action, finding that the plaintiffs sufficiently alleged that the anonymous short-seller blog post that caused the company’s stock to drop 29 percent was both material and a corrective disclosure.

The plaintiffs’ allegations were based largely on a blog post claiming that an individual who was convicted of securities fraud had connections to the defendant company’s CEO and that the company failed to disclose those connections in certain public statements. The blogger later revealed the sources of his post — sources that were publicly available.

The court rejected the defendant’s argument that the information contained within the blog post was immaterial as a matter of law because it was based on publically available sources. The court agreed with the plaintiffs’ distinction “between situations where information is readily and easily available to investors, and situations where the information is only discoverable by combing through and analyzing hundreds of legal and agency documents.” The court rejected the defendant’s loss causation arguments on the same grounds, finding that the blog post could have revealed the truth behind the defendant’s omissions, even though it was based on publicly available information. The court cited the sharp stock drop as evidence that the market had not previously known about the alleged connections between the man convicted of securities fraud and the defendant company’s CEO.

This summary can be found in the November 2017 issue of Inside the Courts.