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Ninth Circuit Affirms Dismissal of Action Alleging Securities Fraud by Twitter
By a MetNews Staff Writer
A judge properly dismissed a securities fraud action against Twitter Inc., a publicly traded San Francisco-based company, the Ninth U.S. Circuit Court of Appeals held yesterday, saying that the Securities Exchange Act does not require full disclosure of facts, merely the absence of misleading statements.
The opinion by Circuit Judge Kenneth Kiyul Lee, writing for a three-judge panel, affirms a decision by District Court Judge Yvonne Gonzalez Rogers of the Northern District of California.
The plaintiffs recited that Twitter, in an Aug. 6, 2019 tweet, disclosed that it had uncovered some bugs in its software that resulted in revealing to advertisers cell phone location data of users who had demanded that such information not be shared—but the company provided an assurance that the glitch had been “fixed” the day before.
Not ‘Fixed’
Rather than the software problem actually having been remedied, Twitter simply stopped providing any such location data to advertisers, resulting in its revenues plummeting. This did not come to light until it issued its quarterly report on Oct. 24, telling of a $25 million shortfall.
The price of Twitter stock plummeted by more than 20 percent. Two putative class actions by investors were brought and were consolidated. In his opinion affirming the dismissal without leave to amend, Lee said:
“Securities laws…do not require real-time business updates or complete disclosure of all material information whenever a company speaks on a particular topic. To the contrary, a company can speak selectively about its business so long as its statements do not paint a misleading picture. Twitter’s statements about its advertising program were not false or misleading because they were qualified and factually true. The company had no duty to disclose any more than it did under federal securities law.”
No Legal Duty
Lee went on to say:
“Plaintiffs suggest that Twitter—when faced with a setback in dealing with software bugs plaguing its [advertising] program—had a legal duty to disclose it to the investing public. Not so. While society may have become accustomed to being instantly in the loop about the latest news (thanks in part to Twitter), our securities laws do not impose a similar requirement….
“Put another way, companies do not have an obligation to offer an instantaneous update of every internal development, especially when it involves the oft-tortuous path of product development.”
The case is Weston Family Partnership v. Twitter, Inc., 20-17465.
Copyright 2022, Metropolitan News Company