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(Article from Securities Law Alert, October 2017) 

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On September 22, 2017, the Southern District of New York dismissed securities fraud claims alleging that a media technology company had misleadingly touted the number of its “registered users” to “fan investor enthusiasm” without disclosing that many of these “users” were unable to access the company’s streaming services because of technological limitations. In re Eros Int’l Sec. Litig., No. 15-CV-8596 (S.D.N.Y. Sept. 22. 2017) (Nathan, J.). The court rejected plaintiffs’ contention “that a person cannot be a ‘registered user’ if he or she cannot meaningfully make ‘use’ of the product.”

Plaintiffs acknowledged that the company “did not define the term ‘registered user,’” but alleged that “the term refers in the internet technology field to persons who not only register to access a website, but who also interact with the website to extract some benefit.” The court held that plaintiffs could not “import the word ‘meaningful’ before ‘use’ absent some representation on the part of the [company] about the quality of registrants’ use.”

The court also rejected plaintiffs’ contention that the company “‘failed to warn’ investors that ‘registered users’ could not make ‘meaningful use’” of the company’s streaming services. The court emphasized that “an omission is actionable under the securities laws only when the corporation is subject to a duty to disclose the omitted facts.” The court  explained that “[d]isclosure is not required simply because an investor might find the information relevant or of interest.”

The court found that the company “could have defined and reported ‘users’ in an alternate way that took into account the specifics of their use, but that does not amount to misrepresentation.”