In re Sequans Commc'ns S.A. Sec. Litig.
289 F. Supp. 3d 416 (2018)
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Rule of Law:
Under the Private Securities Litigation Reform Act (PSLRA), a small group of unrelated investors may be appointed as co-lead plaintiffs, even if formed for litigation, provided the group is small, demonstrates it can work together, and collectively has the largest financial interest in the relief sought.
Facts:
- Sequans Communications S.A. is a publicly traded company developing 4G semiconductor solutions.
- On April 29, 2016, Sequans filed a Form 20-F with the SEC for the fiscal year ending December 31, 2015.
- This form contained certifications from its CEO, Georges Karam, and CFO, Deborah Choate, attesting to the accuracy of the company's financial reporting and revenue recognition.
- On March 31, 2017, Sequans filed another Form 20-F for the fiscal year ending December 31, 2016, also containing similar certifications from Karam and Choate.
- Investors Andrew Renner and Kevin Shillito alleged that these filings were materially false and misleading because Sequans was improperly recognizing its revenue.
- Renner, Shillito, and other investors, including Kulwant Johal, Matthew McGee, Jerry Searing, and The Boca Raton Police and Firefighters' Retirement System, purchased Sequans securities between April 29, 2016, and July 31, 2017, and suffered financial losses.
Procedural Posture:
- Andrew Renner filed a class action complaint against Sequans Communications S.A. and two of its officers in the U.S. District Court for the Eastern District of New York.
- One day later, Kevin Shillito filed a nearly identical complaint in the same court.
- The U.S. District Court Judge consolidated the two actions.
- Following publication of the required notice, three competing motions were filed for appointment as Lead Plaintiff: one by Kulwant Johal and Matthew McGee, one by Jerry L. Searing, and one by The Boca Raton Police and Firefighters' Retirement System.
- Jerry Searing later filed a notice of non-opposition to the appointment of Johal and McGee.
- The District Court Judge referred the competing motions to a U.S. Magistrate Judge for a decision.
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Issue:
Under the Private Securities Litigation Reform Act (PSLRA), may a small group of unrelated investors who were not previously acquainted be appointed as co-lead plaintiffs in a securities class action?
Opinions:
Majority - Bulsara, United States Magistrate Judge
Yes. A small group of unrelated investors may be appointed as co-lead plaintiffs under the PSLRA. The statute explicitly allows a "group of persons" to serve as lead plaintiff, and courts evaluate such proposed groups on a case-by-case basis. The court found that the proposed group of Johal and McGee was entitled to the lead plaintiff presumption because they had the largest financial interest and satisfied the typicality and adequacy requirements of Rule 23. The court rejected the argument that a group must have a pre-existing relationship, finding that a joint declaration showing they are 'like-minded investors' who can cooperate is sufficient. Critically, Johal alone still had a larger financial interest than the next competing movant, so the aggregation was not an artifice to overcome a larger individual investor.
Analysis:
This decision reinforces the majority judicial interpretation that the PSLRA permits the appointment of small, unrelated groups of investors as lead plaintiffs. It clarifies that a pre-existing relationship is not a prerequisite, and that a group's adequacy can be established post-filing through a joint declaration demonstrating a willingness and ability to cooperate. The opinion also signals that courts are less likely to reject a group as an 'artifice' if one of its members would have qualified as the presumptive lead plaintiff even on their own. This provides a practical roadmap for counsel seeking to form small investor groups to lead securities class actions.
