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In order to state a claim for securities fraud under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, the plaintiff must establish that the defendant makes a false statement or omits a material fact, with scienter, and that a plaintiff's reliance on a defendant's action causes plaintiff injury.
Plaintiff Kevin Kimberlin filed a complaint based on alleged violations of securities law and claimed that he is a victim of newer and larger investor defendants who have improperly denied the initial investor plaintiffs’ full participation in the growth potential of defendant Ciena Corporation. The initial investors claimed that Ciena breached its contractual duties and that Ciena and the newer and larger investors (newer investors) violated the federal securities laws, §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, codified at 15 U.S.C.S. §§ 78j and 78t, by misrepresenting or withholding material information. The initial investors also claimed a breach of fiduciary duty against the newer investors. Ciena filed two counterclaims against the initial investors claiming that their purchase of Series C stock needed to be rescinded. The initial investors filed a motion for summary judgment on liability as to the contract claims. The newer investors filed a cross-motion for summary judgment.
Did Ciena, as well as the individual defendants, violate the federal securities laws by misrepresenting or withholding material information?
The court held that its role on a motion for summary judgment was not to resolve disputed issues of fact but to assess whether any factual issues needed to be tried. The court further held that the validity of a waiver of first refusal rights precluded the initial investors from establishing a loss causation element such that the claimed loss, of an inability to purchase a greater amount of series C stock, was not caused by the newer investors' misrepresentations. The plaintiffs have produced no evidence of fraudulent representations to the other investors which might complete the causal chain, nor have they produced any evidence from which it could be concluded -- other than by sheer speculation -- that the alleged fraud prevented the plaintiffs from somehow blocking the execution of the waiver. The defendants having demonstrated that there is no genuine issue of fact as to loss causation, the Court grants summary judgment to the defendants on the federal securities claims.