Cupat v. Palantir Technologies Inc. et al.

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In this Section 11 litigation, the court ruled decisively in favor of the defense.

Retained by Gibson Dunn

Plaintiffs in this securities class action alleged that Palantir Technologies Inc. (Palantir), a data analytics software company, misled investors about its growth prospects when Palantir went public through a direct listing. Plaintiffs sought to lift the PSLRA discovery stay and obtain data to demonstrate that they had purchased registered shares and thus had Section 11 standing.

Counsel for the defense retained Stewart Mayhew of Cornerstone Research to rebut an expert who proffered to apply certain accounting methodologies such as last-in first-out (LIFO) or first-in first-out (FIFO) to data from multiple entities, including the Depository Trust Company, the transfer agent, and broker-dealers.

Dr. Mayhew submitted a declaration showing issues with the plaintiffs’ expert’s proffered use of the data.

Dr. Mayhew submitted a declaration showing issues with the plaintiffs’ expert’s proffered use of the data to construct a “chain of title” through secondary market transactions. Dr. Mayhew showed that the fundamental structure of how securities are held, traded, and settled in modern securities makes tracing securities on the secondary market not feasible, even with the data the plaintiffs hoped to obtain.

The U.S. District Court for the District of Colorado ruled in favor of the defense. The judge granted the defendant’s motion to dismiss, finding that the plaintiffs failed to adequately plead Section 11 claims under the legal standard of “strict tracing requirement.” The court emphasized the U.S. Supreme Court’s decision in Slack v. Pirani, reaffirming that liability under Section 11 applies to purchasers of those securities that are strictly traceable to the registration statement at issue. In addition, the judge denied the plaintiffs’ motion to lift the stay. The court was not persuaded by the argument that tracing could be achieved through accounting methodologies. Notably, the court concluded that allowing constructive tracing would short-circuit the strict tracing requirement as reaffirmed by the Supreme Court.


For more information, contact Sasha Aganin, Stewart Mayhew, or Simona Mola.


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