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.
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