By Rodney F. Tonkovic, J.D.
A lead plaintiff has been appointed in a fraud class action claiming that Elon Musk failed to timely disclose his acquisition of Twitter shares. Oklahoma Firefighters Pension and Retirement System was the presumptive lead plaintiff, having the largest financial interest in the action and otherwise satisfying the Rule 23 requirements. The other movant argued that Oklahoma Firefighters should be barred as a "professional plaintiff" for being involved in too many recent class actions, but the magistrate judge rejected this argument, noting that institutional investors are not meant to be subject to the bar (Rasella v. Musk, September 2, 2022, Gorenstein, G.).
Twitter beneficial ownership. Tesla founder Elon Musk began to purchase Twitter shares in January 2022. By mid-March, Musk had acquired over 5% of Twitter stock, requiring him to disclose that stake under Schedules 13D or 13G within ten days. The complaint alleges that Musk did not make the required filing on Schedule 13G until April 4, 2022 and filed an amended Schedule 13D on April 11, 2022. The complaint alleged that by failing to disclose his ownership interest, Musk was able to acquire shares at artificially low prices between March 24 and April 4. The class members sold shares during this period and missed the later share price increase. Musk's conduct violated the antifraud provisions of the Exchange Act, the complaint claims.
Dueling motions. Two parties moved to be appointed lead plaintiff: Amalgamated Bank, as trustee for a number of funds, and Oklahoma Firefighters Pension and Retirement System. An individual plaintiff had also moved for appointment, but subsequently filed a notice of non-opposition to the competing motions. The court noted that both plaintiffs satisfied the Rule 23 requirements of typicality and adequacy. As to financial interest, Oklahoma Firefighters suffered the greater loss, selling 14,367 shares to Amalgamated Bank's 1,351.
"Professional plaintiff" bar. Amalgamated Bank asserted that Oklahoma Firefighters was a "professional plaintiff" within the meaning of Exchange Act Section 21D(a)(3)(vi). This section prohibits a person from being a lead plaintiff in more than five class actions during any three-year period. Amalgamated Bank said that Oklahoma Firefighters had served as lead plaintiff, or co-lead plaintiff, in six different securities actions over the previous three years.
The court looked to the legislative history of the PSLRA and observed that the House Conference report explained that institutional investors are not the type of "professional plaintiff" that the legislation seeks to restrict. So, the statute bars a person from exceeding the "5-in-3" limit except "as the court may otherwise permit." The court noted that institutional investors have been repeatedly excepted from the bar and agreed with the reasoning behind those decisions, namely that application of the bar to institutional investors would be inconsistent with the purpose of improving the quality of representation.
The court went on to find that Amalgamated Bank was unable to rebut the presumption that Oklahoma Firefighters should be appointed lead plaintiff. There was no evidence that Oklahoma Firefighters had over-extended its resources or would otherwise not be able to efficiently function as lead plaintiff. Amalgamated Bank's request to be appointed co-lead plaintiff was rejected by the court because it would be inappropriate to do so where the plaintiffs did not file a joint motion and because the use of co-lead plaintiffs would unnecessarily increase attorney fees.
The court accordingly appointed Oklahoma Firefighters as lead plaintiff. The choice of Bernstein Litowitz Berger & Grossmann LLP as lead counsel was also approved.
The case is No. 1:22-cv-03026.