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(Article from Securities Law Alert, September/October 2020)

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On September 17, 2020, the Eastern District of New York dismissed a securities fraud action alleging that a cosmetics company and certain of its executives made material misstatements concerning the company’s software rollout. Lachman v. Revlon, 2020 WL 5577406 (E.D.N.Y. 2020) (Kovner, J.). The court emphasized that “Rule 10b-5 does not impose a blanket obligation to disclose all information that would be material to investors.”

The court held that the company was not “required to advise investors of every . . . risk [of the software rollout] in order to make the statements in its 10-K not misleading.” The court further found that the company’s “enumeration of a number of the risks could not reasonably be read to imply that other risks did not exist, because the 2016 10-K made clear that enumeration of risks was non-exclusive.”

The court also held that statements regarding the company’s expectations regarding the benefits of the software rollout were both “mere puffery” and “nonactionable opinion statements.” The court explained that “[s]tatements about what a company ‘expects’ are not actionable unless” plaintiffs allege that “the expectations [did] not pan out and the speaker did not really believe them.”

Finally, the court found that defendants’ actions “before and after the launch undermine[d] any inference of scienter” because the company “disclosed before the [software] rollout that the transition carried substantial risks,” and “made abundant disclosures [after the rollout] regarding the disruptions that the transition had caused.” The court found this “steady stream of warnings render[ed] implausible” plaintiffs’ fraud claims. The court determined that “[a]t worst, plaintiffs have established that defendants should have been more alert and more skeptical about the viability of [the software rollout] when it was launched,” but “nothing alleged indicates that management was promoting a fraud.”