Re: OT - 4/25/00 - Dismissal of Securities Fraud Claims Against Internet Newsletter Is Denied
April 25, 2000
Dismissal of Securities Fraud Claims Against Internet Newsletter Is Denied
On April 25, 2000, the Honorable Leonard B. Sand, United States District Judge for the Southern District of New York, issued a memorandum and order in Alan Fellman, On Behalf of Himself and All Others Similarly Situated, Plaintiffs v. Electro Optical Systems Corp., Charles Weaver, George C. Chachas, U.S. Milestone, Thomas Edward Cavanagh, William Levy, Donald & Co., Cosimo Tacopino, the Future Superstock, and Barrow Street Research, Defendants, No. 98 Civ. 6403 LBS, 2000 WL 489713 (S.D.N.Y., Memorandum and Order filed Apr. 25, 2000). In that case, the plaintiff alleges that he and a reputed class of similarly-situated people were defrauded in a scheme that included fraudulent statements published in an Internet newsletter known as "The Future Superstock". Plaintiff alleges that The Future Superstock recommended the purchase of stock in Electro Optical Systems Corporation and made seven allegedly false misstatements. In its opinion, the Court analyzes each of the alleged misstatements and assesses the issues of whether plaintiff adequately alleged falsity, scienter, materiality, reliance and loss causation. In perhaps the most interesting twist, lawyers for The Future Superstock argued that it was "unreasonable for Plaintiffs to rely on FSS's newsletter given that, two months earlier, the 'Stock Detective' website posted an extremely negative article on FSS. . . . This argument is also unpersuasive. FSS fails to allege that a single member of the class was aware of the Stock Detective assessment of FSS." The court rejected defendants' motion to dismiss and, as to The Future Superstock, held that "Plaintiffs have adequately alleged falsity, scienter, reliance, and causation, we conclude that Plaintiffs have adequately alleged securities fraud under Section 10(b) and Rule 10b-5."
See:
Alan Fellman, On Behalf of Himself and All Others Similarly Situated, Plaintiffs v. Electro Optical Systems Corp., Charles Weaver, George C. Chachas, U.S. Milestone, Thomas Edward Cavanagh, William Levy, Donald & Co., Cosimo Tacopino, the Future Superstock, and Barrow Street Research, Defendants, No. 98 Civ. 6403 LBS, 2000 WL 489713 (S.D.N.Y., Memorandum and Order filed Apr. 25, 2000); Securities Fraud: S.D.N.Y. Allows Fraud Suit Against Internet Newsletter To Proceed, 1(1) e-Trading Legal Alert 8-9 (Andrews Publications June 9, 2000).
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