This Week At The Ninth: Securities Fraud

• Jurisdiction: United States,Federal
• Law Firm: Morrison & Foerster LLP
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Trials & Appeals & Compensation, Securities, Shareholders
• Author: Ms Diana Li Kim
• Published date: 31 January 2023

This week, the Court addresses the pleading standard for a claim of false or misleading statements in connection with a tender offer under Section 14(e) of the Securities Exchange Act of 1934.

ROBERT GRIER V. FINJAN HOLDINGS, INC.

The Court holds that Section 14(e) does not require a heightened pleading standard of a "strong inference" of subjective falsity, but that the plaintiff failed to satisfy even the more lenient standard of a "reasonable inference" of subjective falsity.

The panel: Judges Hawkins, Bea, and Nguyen, with Judge Bea writing the opinion.

Key highlight: "Because an author could negligently state an opinion in which he does not subjectively believe, subjective falsity does not necessarily require scienter. Thus, Section 14(e) can be satisfied without scienter, even when the statements at issue are statements of opinion."

Background: Finjan Holdings, Inc. ("Finjan") is a publicly traded company that develops security technologies for mobile devices. In 2018, Finjan's board of directors ("the Board") initiated a process to explore the possibility of selling Finjan to another entity. In 2020, the Board approved an agreement to sell Finjan to Fortress Investment Group, LLC for $1.55 per share. The Board hired Atlas Technology Group LLC ("Atlas"), a technology-focused investment bank, to prepare an opinion for shareholders about the fairness of the sale. Atlas concluded that the sale price of $1.55 per share was within the reasonable range of estimated share values. The Board provided shareholders a statement that incorporated Atlas's assessment of share value estimates, concluded that the share value estimates were reasonable, and recommended that shareholders approve the sale. Finjan shareholders approved the sale, which occurred in June 2020.

Plaintiff Robert Grier, a then-shareholder of Finjan, filed a class action against the Board. Grier alleged that the Board had violated Section 14(e) of the Securities Exchange Act of 1934, which prohibits any person from "mak[ing] any untrue statement of material fact . . . in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation." 15 U.S.C. ' 78n(e). When the alleged false statement is an opinion, Section 14(e) can only be satisfied under special circumstances. One such circumstance is "subjective falsity"'that is, when the speaker did not actually believe the statement he...