9th Circuit Revives Ubiquiti Shareholder Case

     SAN FRANCISCO (CN) — The Ninth Circuit restored two counts of a class action shareholders complaint against Ubiquiti Networks, a broadband wireless manufacturer that was victimized by counterfeiting.
     Ubiquiti in 2013 obtained a permanent injunction against Kozumi USA, prohibiting it from selling wireless and networking products. Ubiquiti claimed that Kozumi obtained blueprints from a former Ubiquiti employee and sold copycat products in South America, causing Ubiquiti’s stock prices to fall.
     Shareholders claimed that Ubiquiti downplayed the scale of the counterfeiting in SEC filings, misleading investors who otherwise might not have bought the stock.
     A federal judge dismissed the shareholders’ claims, finding the company’s registration statement adequate. Shareholders appealed to the Ninth Circuit.
     In its unpublished unanimous opinion on Monday, the Ninth Circuit reversed two counts of the dismissal. It found that the shareholders made a plausible claim under Section 11 of the Securities Act of 1933.
     “(T)he registration statement misrepresented the true extent of counterfeiting and the misrepresentation would have misled a reasonable investor,” the panel wrote.
     The shareholders also plausibly stated a Section 15 claim, which requires a Section 11 violation. The case will be remanded for these claims.
     But the district court properly dismissed the shareholders’ claim under Section 10(b) of the Securities Exchange Act of 1934, which requires knowledge of wrongdoing.
     “Construing plaintiffs’ allegations in the light most favorable to plaintiffs, the complaint fails to demonstrate that defendants had sufficient knowledge of the misleading nature of the challenged statements,” the court wrote (citation omitted.)
     Because this claim was dismissed, the district court properly dismissed the Section 20(a) claim because it would require a Section 10(b) violation.
     The shareholders are represented by Robbins Geller Rudman & Dowd in San Francisco and Labaton Sucharow in New York.
     Ubiquiti is represented by Latham & Watkins and Gibson Dunn & Crutcher, both of San Francisco respectively.     
     Peter Wald, of Latham & Watkins, said Ubiquiti was pleased with the panel’s ruling in its favor, but was disappointed with the Section 11 ruling.
     “Ubiquiti maintains that its registration statement was neither false nor misleading with respect to the activity of counterfeiters at the time of its IPO, and intends to petition for rehearing of this issue,” Wald said. “If Ubiquiti’s petition is denied, it will push forward with discovery, summary judgment, and trial if necessary, to vindicate itself.”
     John Gardner of Labaton Sucharow declined to comment. None of the other attorneys involved could be reached.

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