A New Source For Securities Claims - Indirect Purchasers and Unfair Competition
A new ruling out of CA brings new concerns for private companies when issuing IPO’s. To summarize the case/ruling: (Indirect) Investors of Theranos who purchased pre-IPO shares (through funds formed by intermediaries) were ruled as allowed to file securities claims against the company and its officers despite lacking a direct relationship or owning actual shares. In addition to allegations of fraud are allegations of unfair competition. The courts determined that the depth of advertising and public nature of Theranos’ statements regarding its products/technology also has enough ground for the basis of a securities fraud claim due to the fact that they painted a “false story”, were integral in inflating the value of the company’s securities and were relied upon by the indirect purchasers prior to purchasing. This case also has important implications when reviewing/grooming D&O insurance for IPOs – in addition to the standard recommendations, brokers and attorneys may also have to pay careful attention to exclusions surrounding false advertising and unfair competition.
