The judge denied class certification in this securities class action alleging omissions in the prospectus of a Regulation A+ IPO.
Retained by Sheppard Mullin
In two related securities class actions involving claims under Section 12 of the Securities Act, one filed in federal court and the other in state court, both judges denied the plaintiffs’ motions for class certification.
The shareholders in the federal case alleged FAT Brands, a restaurant franchising company, omitted relevant information from its prospectus about the “experience and effectiveness of FAT Brands’ leadership” ahead of its initial public offering (IPO). The IPO prospectus was filed under Regulation A+.
Plaintiffs claimed the defendant concealed the fact that subsidiaries of the major shareholder had filed for bankruptcy eight years before the IPO. Defense counsel retained Filipe Lacerda of Cornerstone Research to analyze the extent to which the allegedly omitted information was readily available from public sources.
Dr. Lacerda identified several articles freely and publicly available on the internet and elsewhere that discussed the bankruptcy filings. He documented that these articles were publicly available over the eight years prior to the IPO, and appeared in a variety of media outlets with myriad readership, including major publications.
A judge for the U.S. District Court for the Central District of California found that the proposed class did not meet federal requirements, as individualized issues predominated over common ones. Denying the plaintiffs’ motion for class certification, he stated that the “evidence shows that it is likely that, before investing, some purchasers came upon, or discovered or were exposed to this allegedly omitted information regarding the bankruptcies, requiring individualized inquiries into each class member’s alleged lack of knowledge.” The judge cited Dr. Lacerda’s expert declaration in his order.
A related case, Rojany v. FAT Brands Inc. et al., was filed in the Superior Court of the State of California for the County of Los Angeles. The judge denied class certification on the same grounds and cited Dr. Lacerda’s expert declaration.