Lucid Alternative Fund, LP v. Aehr Test Systems, Inc.

Background

Lucid Alternative Fund, LP filed a securities-fraud class action against Aehr Test Systems, Inc., Gayn Erickson, and Chris Siu. The complaint alleges that the defendants made materially false or misleading statements under the Securities Exchange Act of 1934 about Aehr’s fiscal-year 2024 revenue projections and performance. The proposed class covers people and entities that purchased Aehr securities from January 9, 2024, through March 24, 2024.

Lucid and Yue Guo each moved to be appointed lead plaintiff under the Private Securities Litigation Reform Act. Lucid claimed a net loss of $315,422 from transactions involving 50,000 Aehr shares and 1,646 options contracts. Guo claimed an estimated loss of $82,733.84 from purchasing 17,800 Aehr shares. Lucid selected Pomerantz as lead counsel, while Guo selected Rosen Law.

Legal standard

The Act generally gives a presumption of lead-plaintiff status to the applicant with the largest financial interest, provided that applicant satisfies the requirements of Federal Rule of Civil Procedure 23, particularly typicality and adequacy. Other applicants may rebut that presumption by showing that the proposed lead plaintiff cannot fairly and adequately represent the class or faces unique defenses.

A lead plaintiff is adequate when the plaintiff and counsel will vigorously pursue the case and do not have conflicts with other class members. Typicality asks whether the proposed representative suffered the same or a similar injury as other class members, based on conduct that is not unique to that representative.

Court’s analysis

The court found that Lucid had the larger financial interest, regardless of whether certain disputed purchases were included in the loss calculation. It also found that Lucid initially made a sufficient showing of adequacy and typicality. The issue was whether Guo could rebut the resulting presumption.

The court found Lucid adequate because it saw no conflict with other class members and no reason to doubt Lucid’s ability to pursue the case vigorously. However, the court concluded that Lucid’s trading history raised legitimate typicality concerns. Lucid bought common stock, bought and sold call options, and sold put options. About two-thirds of Lucid’s stock acquisitions resulted from obligations arising from its sale of put-option contracts.

The court reasoned that the volume and varied nature of Lucid’s options trading could introduce factual issues that do not apply to ordinary stock purchasers. Options have different time limits and trading incentives from common stock, which could complicate the calculation of losses caused by the alleged fraud. The court therefore found Lucid atypical and denied its motion to be appointed lead plaintiff.

Guo’s claimed losses came only from open-market purchases of Aehr common stock. The court found that Guo satisfied the adequacy and typicality requirements and was the only remaining movant who did so.

Lead counsel and disposition

The court granted Guo’s motion to be appointed lead plaintiff. It also approved Guo’s selection of Rosen Law as lead counsel, finding that the firm had the relevant experience and qualifications and that appointing different counsel was not necessary to protect the class.

The order therefore grants Guo’s motion to appoint lead plaintiff and lead counsel and correspondingly denies Lucid’s motion to appoint lead plaintiff and lead counsel. The order does not decide whether the securities-fraud allegations are ultimately proven. It also directs the parties to meet and confer about a schedule if Guo amends the complaint and requires a statement-by-statement chart of the fraud allegations if the original complaint remains in place.