Northern District Of California Grants Motion To Dismiss Securities And Exchange Act Claims Against Mobile Gaming Technology Company Holding That Plaintiffs Did Not Adequately Plead Falsity, Scienter, Loss Causation, Or Material Misstatements Or Omissions

• Published date: 12 July 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Securities
• Law Firm: Shearman & Sterling LLP
• Author: Shearman & Sterling LLP

On July 5, 2022, Chief Judge Richard Seeborg of the Northern District of California granted motions to dismiss a putative securities class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") Rule 10b-5 thereunder, Section 20(a) of the Exchange Act, and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 ("Securities Act"), against a mobile gaming technology company (the "Company"), certain of its officers and directors, and its underwriters. Jedrzejczyk, et al. v. Skillz Inc., et al., No. 21-cv-03450-RS (N.D. Cal. July 5, 2022) Plaintiffs alleged that defendants made material misstatements and omissions regarding the Company's financial condition technical capabilities, and business prospects. The Court granted defendants' motions to dismiss, holding that plaintiffs failed to adequately plead falsity, scienter, or loss causation as to the Exchange Act claims, and that plaintiffs had not established standing or adequately pled material untrue statements or omissions as to the Securities Act claims

According to the consolidated class action complaint, the Company is a mobile gaming technology company that does not develop or distribute games, but instead provides a platform for third-party users to develop, distribute, and compete in their own games. Plaintiffs alleged that the Company went public on December 16, 2020 and launched a secondary public offering on March 18, 2021. Plaintiffs further alleged that, during the putative class period, defendants made misleading statements and omissions concerning the Company's (1) declining game downloads; (2) expansion to India; (3) synchronous gameplay capabilities; (4) userbase engagement and growth; (5) metrics; (6) revenue disclosures; and (7) classification of SPAC warrants as assets, rather than liabilities. Plaintiffs also alleged that defendants misrepresented that the Company had adequate internal disclosure controls.

Addressing the Exchange Act claims first, the Court held that plaintiffs failed to plead falsity as to any of the alleged misstatements or omissions. Specifically, the Court held that defendants' alleged statements regarding continued growth in downloads were not inconsistent with the alleged decreasing number of downloads for certain games, finding "it could mean that a title continues to grow at a substantial rate, if its original download rate was especially high." The Court also held that alleged statements about expanding to...