The New York Southern District Pares claims in a alleged class action lawsuit against a telecommunications company Shearman & Sterling LLP

On March 25, 2022, Judge Mary Kay Jumped of the Southern District of New York partially upheld and partially dismissed the motion to dismiss the alleged class action lawsuit under the Securities Exchange Act of 1934 against the telecommunications company and some of its executives. . Solomon v. Sprint Corp., 1: 19-cv-05272 (MKV) (SDNY, March 25, 2022). In particular, the applicants alleged that the company had made false statements regarding the reporting of new prepaid telephones and its participation in a government-subsidized discounted telephone program. The Court ruled that the applicants had reasonably made false statements and of the researcher with regard to the statements concerning the new prepaid, but ruled that the applicants had not sufficiently accused the researcher with regard to the statements concerning the discounted telephone program, and concluded that some other the contested statements were merely inflated.

The applicants claimed that there were two main categories of false statements. First, the applicants claimed that the company’s reporting of the number of flat rate lines added by subscribers was misleading, not least because the company increased the number of subscriptions by offering customers a bundled toll-free line with the line purchased. Slip op. or 2-4. Second, the applicants alleged that the company had made false statements regarding its participation in a government-subsidized program that provided discounted telephone and Internet services to low-income customers, which were allegedly false and misleading because the company did not deactivate lines that had been inactive for 30 days. as required by the terms of the program. Id. at 5-6. The applicants claimed that those statements had been made in the context of a prospective merger in order to increase the likelihood that the merger would take place. Id. on 7.

The court ruled that the applicants had reasonably made false statements regarding the company’s reporting of the added flat lines. The court rejected the company’s arguments that its statements were “technically true” and were supplemented by additional information explaining that the company had used promotions and included non-telephone devices in the reporting of redundant numbers. Id. v 13. The Court noted that when a company decides to address a problem, it must disclose sufficient information to ensure that its statements are not misleading. Id. v 11. Although the Court agreed that the statements were technically true, it explained that the additional disclosures “do not invalidate the clear impression given by the company’s other statements about the strength of the business as a whole”. Id. 13. In particular, the Court noted that the company had “drawn such an optimistic picture of the company’s repaid revenues that investors had no choice but to keep the company’s net payroll growth continuing to grow”, even though the company’s board of directors was allegedly informed that the number of added lines decreased that the company’s performance was worse than that of other telephone operators and that growth is not expected to continue. Id. at 12-13 p.m.

As regards the company’s participation in the discounted telephone program, the company acknowledged that its accounts were incorrect because they “claimed the revenue they had wrongly obtained” in relation to the scheme and because “the company’s internal controls failed to ensure compliance.” Id. v 14. Similarly, the Court explained that the alleged false statements of financial performance and revenue were open to challenge because the company “did not disclose that a significant portion of its revenue was misappropriated due to [the company’s] control elements.” Id. at 15.

However, the court ruled that the contested statements regarding the company’s “corporate goals and competitive advantages” were an unassailable inflation. Id. at 15-16. The court noted the statements as “whether we will make a merger[r] … or stay alone … we should be a great platform in terms of network “were” statements of optimism for the future “, which were a common bloat. Id. v 16. The Court of First Instance therefore rejected any claims which were based on those statements in so far as they ‘have no connection with the statements which the Court of First Instance considered to be open to challenge’. Id.

As regards the scientist, the Court explained that the applicants had argued “almost exclusively” for deriving a scientist based on the theory of negligence, pointing to the alleged “discrepancy between statements made internally in the company and statements made to the public”. Id. at 5 pm-6pm The court ruled that the plaintiffs had reasonably argued to the scientist regarding the added prepaid subscriptions, arguing that the company “had only publicly discussed [the company’s] success of the additional increments, “although the company’s board of directors was allegedly informed of the” drastic reduction in[] and the company subsequently stated in a letter to the regulator that this reporting was “incomplete” and “not a substitute for a realistic analysis of the key factors that best indicate the [the company’s] overall competitive position and prospects. ” Id. v 18. The Court stated that those allegations, at the stage of the application for rejection, gave rise to a sufficient conclusion by the scientist that the defendants ‘were either aware of the falsity of the statements or were indifferent to their statements’. Id. at 6-19 p.m.

The court ruled that the plaintiffs did not sufficiently accuse the scientist of the statements regarding the discounted telephone program or related alleged inaccuracies in the company’s financial statements. While the applicants alleged that the e-mail allegedly sent to the company’s “senior lawyer” explained that the company had a “systemic” failure to monitor subscribers in the government program, the Court emphasized that the applicants had not provided any further evidence to suggest that individuals in the company they were aware of the problems with internal controls. Id. v 19. In addition, the Court noted that the applicants had given no reason why that e-mail sent to the Oregon Public Services Commission in 2014 should be interpreted as relating to a ‘national problem’ or allegedly incorrect payments published five years later. Id. at 7-20 p.m. The court also rejected the applicants’ argument that the defendants had a ‘motive and opportunity to commit fraud’ on the basis of an alleged ‘desire to maximize the cost of the merger’ and ‘provoke a merger’. Id. v 20. The Court explained that this argument constituted a “general desire” to achieve a profitable result and was not supported by claims of “concrete and personal benefit” to the company’s executives, as would be required to support the scientist’s conclusion. Id. at 8-21 p.m.

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