Opinion ID: 778688
Heading Depth: 2
Heading Rank: 3

Heading: NetRadio Hype

Text: 34 The first heightened pleading requirement Congress enacted for securities fraud cases under 10b-5 is that the complaint must specify each false statement or misleading omission and explain why the omission was misleading. 15 U.S.C. § 78u-4(b)(1). The purpose of this heightened pleading requirement was generally to eliminate abusive securities litigation and particularly to put an end to the practice of pleading `fraud by hindsight.' In re Vantive Corp., 283 F.3d at 1084-85 (quoting In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 988 (9th Cir.1999)). The investors fail to plead the existence of any facts or further particularities that, if true, demonstrate that the defendants had access to, or knowledge of, information contradicting their public statements when they were made. 35 Mere allegations of fraud are insufficient, even under the pre-PSLRA pleading standard. See Parnes, 122 F.3d at 549. Some of the direct statements alleged to be fraudulent by the investors are: Paulson's November 25, 1998, statement that Navarre had hired an undisclosed investment bank to take its NetRadio unit public soon; statements attributed to defendants generally that Navarre would complete the NetRadio IPO by the end of the year; Paulson's December 9, 1998, statement to CNBC that Navarre planned to file a registration statement within sixty days; Paulson's January 1999 statement during a conference call that he was reasonably comfortable that the NetRadio IPO would occur by early February 1999; and the allegation that on February 8, 1999, the defendants retreated from a prior announcement but still confirmed plans for an IPO within the next several weeks. Any remaining allegations concern statements made by analysts and news reporters, which the investors allege represent a direct statement or quotation by a Navarre insider or an endorsement of or failure to correct widely disseminated reports. 36 The general allegations contained in the amended complaint are inadequate under the heightened pleading standard of the PSLRA. The amended complaint fails to indicate why these statements would have been false or misleading at the several points in time in which it is alleged they were made. See In re Vantive Corp., 283 F.3d at 1086. Simply alleging that defendants made a particular statement at a given time, without providing further particulars about who made the statement or when, and then showing in hindsight that the statement is false misses the PSLRA pleading requirement. Corporate officials need not be clairvoyant; they are only responsible for revealing those material facts reasonable available to them. Novak, 216 F.3d at 309. For example, the investors allege in paragraph thirty-four of the amended complaint that [d]efendants knew or were reckless in not knowing that it would be impossible to file even a registration statement until March 1999, but give no particulars as to why this must be true. Why would the defendants have known of this impossibility? The failure to plead this why with particularity in this example is indicative of the failings of the investors' amended complaint. In sum, the investors' failure to plead their allegations of fraudulent misstatements and omissions with particularity is insufficient and fatal under the PSLRA. 37
38 The representations made by third parties that the investors attribute to Navarre are also insufficient under the PSLRA pleading standard. Generally, securities issuers are not liable for statements or forecasts disseminated by securities analysts or third parties unless they have sufficiently entangled [themselves] with the analysts' forecasts [so as] to render those predictions `attributable to [the issuers].' Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 163 (2d Cir.1980). In order to attribute third-party statements to the defendants, the investors must demonstrate that the statements were adopted by the defendants or attributable to the defendants in some way, such as when officials of a company have, by their activity, made an implied representation that the information they have reviewed is true or at least in accordance with the company's views. Id. The investors could also allege that the defendants used the analysts as a conduit, making false and misleading statements to securities analysts with the intent that the analysts communicate those statements to the market. Cooper v. Pickett, 137 F.3d 616, 624 (9th Cir. 1997). 39 The investors allege in paragraph thirty of the amended complaint that defendants began making public statements that it would complete the NetRadio IPO by the end of the 1998 year, and attach Exhibit C as substantiation of that representation. Exhibit C is a transcript from a CNN financial news program, on which CNN correspondent Bill Tucker stated: 40 The company has publicly admitted that it is working to bridge NetRadio out as an IPO before the end of the year. Spoke with a company spokesmen [sic] who did confirm that the company is trying to bring the IPO out. 41 The investors fail to allege any facts demonstrating why this statement was false when made, or how this report is in any way attributable to the defendants other than the article's assertion that the company has publicly admitted this fact. 42 Another example of the insufficiency appears in paragraph thirty-seven of the amended complaint where the investors allege that [o]n February 3, 1999, Navarre announced that it expected to file a registration statement with the SEC early the following week. To substantiate this claim, investors attach a related news article reporting this representation. However, the attached news article printed in the February 3, 1999, edition of the Minneapolis Star Tribune states that a spokesman for Navarre declined to comment on their story. So, it is not clear who made the alleged announcement, where it was made, what it entailed, when it was made, why it was false when made or how plaintiffs are able to substantiate the allegation other than through an independent news source story. This pattern of pleading, which is consistent throughout the investors' amended complaint, is hardly the stuff of particularity.