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Georgia-based Galectin Therapeutics Inc. sidestepped securities fraud claims over its failure to tell investors it paid promoters to tout its stock ( In re Galectin Therapeutics Secs. Litig. , 2016 BL 417279, 11th Cir., No. 16-10324, 12/15/16 ).
Galectin’s statement it took no action to manipulate its stock wasn’t a misrepresentation, given that the securities laws don’t bar issuers from hiring analysts to promote their securities, the U.S. Court of Appeals for the Eleventh Circuit said Dec. 15.
Galectin also can’t be held liable for the promoters’ allegedly misleading failure to disclose that they were paid to write favorable articles about the company, Judge Frank Hull wrote. She said neither Galectin nor its officers and directors “made” the alleged misstatements within the meaning of the U.S. Supreme Court’s Janus decision.
In Janus Capital Group Inc. v. First Derivative Traders, 564 U.S. 135 (2011), the high court held that the maker of a statement for 1934 Securities Exchange Act Section 10(b) purposes is the party with “ultimate authority” over it.
In July 2014, several months after Galectin made the second of two stock offerings, investment commentators began publishing articles that the concern was paying penny stock promoters to write flattering stories and issue misleading press releases, the appeals court said. Galectin’s stock price plummeted in the wake of the articles, falling from $15.91 to $7.10 per share in a single day.
In their lawsuit, the investors claimed Galectin fraudulently omitted to disclose that it paid the firms to tout its stock. The district court dismissed the complaint for failure to state a claim and the appeals court affirmed.
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