(Article from Securities Law Alert, April 2018)
For more information, please visit the Securities Law Alert Resource Center
On April 24, 2018, the Second Circuit affirmed dismissal of a securities fraud action alleging misstatements concerning the values of the company’s online marketplace.[1] Altayyar v. Etsy, 2018 WL 1918519 (2d Cir. 2018) (summary order) (Altayyar II). The Second Circuit found “the purported misstatements” were all “vague aspirational statements” that could not give rise to a securities fraud claim.
Plaintiffs sought to recover losses that followed an analyst report indicating that certain of the items sold on the company’s online marketplace were either counterfeit or infringed on existing trademarks and copyrights. Plaintiffs claimed that a number of the company’s values-related statements misrepresented the company’s “trustworthiness.” Altayyar v. Etsy, 242 F. Supp. 3d 161 (E.D.N.Y. 2017). For example, plaintiffs pointed to statements describing the company as “a mindful, transparent and humane business” with “an authentic, trusted marketplace that embodies [the company’s] values-based culture.”
The district court found these statements were “precisely the type of puffery that the Second Circuit has held to be non-cognizable.” The court reasoned that “[w]ords like ‘mindful,’ ‘humane,’ ‘genuine,’ and ‘authentic’ are not quantifiable or factual; they are subject to interpretation, within reason, and are statements of opinion.” The court explained that “‘a sincere statement of pure opinion is not an untrue statement of material fact, regardless whether an investor can ultimately prove the belief wrong.’” Id. (quoting Omnicare v. Laborers Dist. Council Const. Indus. Pension Fund, 135 S. Ct. 1318 (2015)). The district court determined that even if “plaintiffs’ allegations might show that [the company’s] compliance practices were imperfect,” plaintiffs did not “establish that the challenged values statements were objectively false or disbelieved when [the company] made them.”
On appeal, the Second Circuit found the district court “correctly dismissed” plaintiffs’ claims for failure to “allege actionable misstatements or omissions.” Altayyar II, 2018 WL 1918519.
[1] Simpson Thacher represents the underwriters of Etsy’s initial public offering in this matter.