ATLANTA (Legal Newsline) – The U.S. Court of Appeals for the 11th Circuit has ruled that a company does not have to disclose that it hired outside firms to publish promotional material regarding a company and its stock evaluations. The ruling confirmed that the third party has the duty to disclose the payments
The ruling came as part of a recent 11th Circuit decision affirming the dismissal of a securities class action suit against Georgia-based biotechnology company Galectin Therapeutics Inc. on Dec. 15.
In a suit filed in May 2015, lead plaintiff Glynn Hotz filed his claim on behalf of a putative class of Galectin shareholders alleging top company officials violated certain Securities Exchange Act and bylaws by misleading shareholders about a third-party firm’s senior execs having secretly hired outside firms to publish positive articles about the company and its stock price.
“This case wasn’t any different than most shareholder suits, and after the court found it had no legal merit with no valid legal claim it was properly dismissed as it should have been,” B. Warren Pope of King & Spaulding, which handled the case for Galectin, told Legal Newsline.
Several district courts had rendered rulings on similar situations, but the 11th Circuit is the first appellate court to weigh in on the issue in the form of a published opinion.
While the suit stopped short of arguing any of the information offered up in the articles was patently false, it strongly contended by virtue of its actions the company was effectively “manipulating” its stock price.
In a unanimous 23-page ruling written by Judge Frank M. Hull, the appeals court found differently, ruling that the plaintiff failed to allege actionable claims because “nothing in the securities laws prohibits Galectin as a company...from hiring analysts to promote Galectin, circulating positive articles about its drug development, or recommending the purchase of Galectin’s stock.”
The court also found the company’s publishing of boastful, yet truthful articles “is not stock price manipulation as a matter of law.”
Finally, the court ruled that since Galectin did not directly make any of the statements highlighted in the published articles it could not be found liable for them, and that fact would not change even if the some of the contentions made in the pieces were alleged to be false.
“We thought we were right from the beginning and that the court ruled correctly,” Pope added. “We think that any jurisdiction that we went before would have agreed that we had the correct position and sided with us.”
The company now plans to seek dismissal of a similar shareholder action taken in Nevada after the initial federal suit was filed.
Galectin Therapeutics is the leading developer of therapeutics targeting galectin proteins to treat fibrosis and cancer.
Pope handled the case along with King & Spaulding colleagues Michael R. Smith and Alexandra S. Peurach.
“The company is now looking forward to putting this nightmare behind them,” Pope said.
Alerts Sign-up