WilmerHale achieved a major victory when a federal district judge dismissed a shareholder lawsuit alleging securities fraud against client Top Ships Inc., and some of its corporate officials.
US District Judge Brian Cogan threw out a lawsuit seeking class-action status against Top Ships, an Athens-based owner of petroleum tanker vessels. Among the defendants were two company officials, Evangelos J. Pistiolis, the company’s chief executive officer, president and founder, and Alexandros Tsirikos, its chief financial officer, as well as several institutional investors.
Judge Cogan, who sits in the US District Court for the Eastern District of New York, dismissed the lawsuit in its entirety on August 5, 2019. Further, he denied the plaintiff’s request to amend the claim in hopes of a different outcome.
The plaintiffs had alleged that Top Ships and the other defendants engaged in market manipulation not only through the sale of large quantities of securities to outside institutional investors and fellow defendants Kalani Investments Ltd. and Xanthe Holdings Ltd. but reverse stock splits as well.
The plaintiffs claimed that the share issuances and reverse splits let Kalani and Xanthe sell their common stock at a profit and that those sales in turn drove down the company’s stock price, thus harming other shareholders. Plaintiffs further alleged that Top Ships violated the law by failing to disclose that the “true purpose” of the challenged share issuances and reverse stock splits was to enrich defendants at the expense of other shareholders.
Judge Cogan roundly rejected those and other claims. “Defendants main argument—and it is a good one—is that this conduct was not manipulative because it was fully disclosed to the market, including Top Ships’ shareholders.” In a 33-page opinion that is unsparing in its puncturing of the plaintiffs’ arguments, Judge Cogan called the main allegation, “a classic example of circular reasoning and conclusory pleading. Plaintiffs have only alleged that defendants’ conduct was manipulative because they did not tell shareholders that their conduct was manipulative…
“Plaintiffs have put the cart before the horse. They have concluded that fraud occurred and employ that conclusion to argue that they have stated a claim for fraud. But plaintiffs cannot escape the fact that ‘[i]n order for market activity to be manipulative, that conduct must involve misrepresentation or nondisclosure.’ Every term in each transaction that they challenge in the complaint was disclosed to them.”
Partner Michael G. Bongiorno who led WilmerHale’s team said: “We’re very pleased that Judge Cogan accepted our motion to dismiss this completely groundless suit. His decision is significant because it makes clear that market manipulation claims cannot be predicated on disclosed, open-market transactions.
“It also clarifies an unsettled area of law regarding the obligations of foreign issuers under Regulation S-K,” Mr. Bongiorno said. “Additionally, it further defines the line between well-pleaded allegations to which the presumption of truth attaches and speculative, circularly pleaded claims.”
WilmerHale’s legal team also included Partner Peter J. Kolovos, Counsel Jeremy Adler, and Senior Associates Lexie Rueckle Reynolds and Adam Amir.