When any of the judges in the District of Wyoming weighs in on the PSLRA, you had better lean in close and listen like it was E.F. Hutton himself. Why? Well, in the ten years since the PSLRA’s enactment, no reported decision from that District has ever mentioned the statute. That is until now. Who knows why that means you should listen more, but you have to at least be able to use this information to win some kind of bet. Or here is a better one to try on your friends. Since the District of Wyoming was first created on September 20, 1890, how many Article III judges have served on the Court? Nope, way to high. Six. Yes, 6. It’s true. And that even includes the current three sitting now. You still don’t believe it? O.K., verify it here at the Federal Judicial Center’s Judicial Database.
Anyway, seems a Wyoming company called Bishop Capital decided that it no longer wanted to be a public company, so they issued a proxy to their shareholders proposing a 1 for 110 reverse stock split. But before a vote could take place, a New York investment company filed a 10(b) action alleging Bishop made “false, misleading, and unlawful statements in their proxy statement in an effort to discourage shareholders from voting against the stock split.”
Judge Clarence Addison Brimmer, Jr. evaluated the claims under the PSLRA, first finding that “the Amended Complaint specifically sets forth the statements made by Bishop Capital which Plaintiffs believe were misleading and why such statements were misleading.” Statements like “the proxy statement among other things falsely stated that the value of the Company's gas interests was $ 351,605, when in fact the value was in excess of $ 2.33 million” hit the spot.
Second, the court found Plaintiffs had properly “established a strong inference of scienter” under Pirraglia v. Novell, Inc., 339 F.3d 1182, 1194 (10th Cir. 2003) because “Defendants could have made false statements in the proxy statement to encourage the reverse stock split which would allow the company to acquire outstanding shares at an unfairly low value.” The court also found “motive and opportunity,” as Plaintiffs alleged Defendants “intentionally made fraudulent statements regarding the various assets of the company in order to facilitate the reverse stock split.” In conclusion, the judge stated “these allegations of motive, opportunity, and fraudulent statements, when combined and read as a whole, meet the legal pleading requirements of the PSLRA in regards to the Defendants' state of mind.”
So there you have it, and you had better enjoy it. At this rate, we won’t get another until George Jung is released.
You can read the decision, issued June 29, 2005, at 2005 U.S. Dist. LEXIS 12932.
Nugget: “In reviewing the Amended Complaint as a whole, and accepting Plaintiffs' allegations as true, it is clear that Plaintiffs have established a strong inference of scienter.”