IN RE PAYSAFE LIMITED f/k/a FOLEY TRASIMENE ACQUISITION CORP. II SECURITIES…

Background

Robert J. Viani and Eric C. Price brought a proposed class action against Paysafe Limited, formerly Foley Trasimene Acquisition Corporation II, Philip McHugh, Ismail Dawood, William P. Foley, II, Richard N. Massey, and Bryan D. Coy. The complaint asserted claims under Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5, including claims based on alleged false statements, omissions, and a deceptive scheme. It also asserted Section 20(a) “control person” claims against the individual defendants.

The shareholders alleged that the defendants failed to adequately disclose the likely effect of Germany’s Fourth Interstate Treaty on Gambling. Among other changes, the treaty imposed a €1,000 monthly deposit limit across online-gambling platforms. The shareholders alleged that Paysafe depended substantially on online gambling and that the defendants knew the German changes could materially reduce revenue but instead described Paysafe’s growth prospects and regulatory position favorably. They pointed to later revenue guidance reductions and stock-price declines in August and November 2021 as evidence of the alleged fraud’s effects.

Motions and governing standards

The Paysafe Defendants and the FTAC Defendants separately moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the Consolidated Amended Complaint in its entirety. At that stage, the court accepted well-pleaded factual allegations as true but required the complaint to state a plausible claim. Because the securities-fraud claims sounded in fraud, the complaint also had to satisfy heightened pleading requirements under Rule 9(b) and the Private Securities Litigation Reform Act. Those requirements included identifying the allegedly misleading statements, their speakers and timing, why they were misleading, and particular facts supporting a strong inference of the required wrongful state of mind, known as scienter.

Section 10(b) and Rule 10b-5 claims

The court held that the challenged statements were not adequately pleaded as false or misleading. It rejected the theory that the defendants’ general growth statements were misleading because they omitted the anticipated effect of the German deposit limit. The court reasoned that the complaint did not plausibly show that the limit was reasonably likely to have a material effect on Paysafe as a whole, particularly because Germany was one of multiple markets and the limit was one of several regulatory changes.

The court also held that the statements about German and European gambling regulations were not misleading when read in context. Those statements disclosed that regulatory changes could affect Paysafe both positively and negatively. The court said the shareholders improperly selected favorable portions of the disclosures while disregarding the full context.

The court separately rejected the challenges to Paysafe’s June 2021 blog post and McHugh’s September 2021 conference statement. The blog post discussed the legal uniformity of the German gambling regime and identified the €1,000 limit; it did not make a statement about Paysafe’s revenue. McHugh attributed a German online-sports-betting slowdown to tax laws, and the court concluded that Paysafe was not required to identify every possible negative effect.

The court further ruled that several challenged statements were protected by the securities-fraud statute’s safe harbor for forward-looking statements. It found that the growth statements and the statements about German regulations concerned future growth or future effects of regulatory changes and were accompanied by meaningful warnings about changing and uncertain regulations. The court also characterized the growth statements as non-actionable corporate optimism or “puffery,” meaning broad and vague positive statements that a reasonable investor would not ordinarily treat as concrete facts.

Who made the statements

The court concluded that Foley was adequately alleged to have made the statements about German regulations because he signed certain filings and had ultimate authority over those statements. It held that Massey and Coy were not adequately alleged to be the makers of those statements because the complaint relied primarily on their positions, their involvement in due diligence, and FTAC’s structure, without facts showing control over the statements’ content or communication.

Materiality and scienter

The court found that the complaint did not adequately plead materiality. It reasoned that investors already knew that Germany was a significant market, that the regulations could negatively affect Paysafe, and that Paysafe generated revenue through transaction fees. The court found insufficient support for the claim that investors lacked information about Paysafe’s exposure to higher-value bettors.

The court also held that the complaint did not plead scienter as to the Paysafe Defendants, the FTAC Defendants, or Paysafe itself. The later statements by McHugh and Dawood showed that some negative effect from the German regulations had been anticipated, but, in the court’s view, they did not show that the defendants had anticipated the eventual material negative impact. The court also found that the allegations about monitoring regulations, due diligence, the importance of iGaming, and Foley’s financial interest in completing the merger did not create a sufficiently strong inference of fraudulent intent or recklessness.

Scheme liability and loss causation

Because the complaint did not adequately plead scienter, the court also rejected the Rule 10b-5(a) and (c) scheme-liability claims. The court held that the Section 20(a) control-person claims failed because they depended on an adequately pleaded primary Section 10(b) violation, which the complaint did not establish.

The court also held that the complaint did not adequately plead loss causation, meaning a plausible causal connection between the alleged misstatements or omissions and the shareholders’ losses. The August 16, 2021 disclosure attributed reduced revenue guidance to seasonal European gaming activity and did not mention the Fourth Treaty. The court found no sufficient connection between that disclosure and the alleged regulatory risk. It likewise concluded that the November 11, 2021 disclosure could not establish the required causal link because the complaint had not adequately alleged an actionable misstatement or the required scienter.

Disposition and amendment

The opinion states that the two defendants’ motions to dismiss were granted. The court nevertheless allowed the shareholders to file a Second Consolidated Amended Complaint by April 21, 2025, because it was not apparent that another amendment would be futile. The court stated that the case would be closed if no amended complaint were filed.

The opinion contains an apparent drafting inconsistency in its final section. After discussing the securities claims and the defendants’ motions, the conclusion states, “Plaintiffs’ motion is GRANTED,” and says that plaintiffs may replead claims under the Terrorism Risk Insurance Act and New York Civil Practice Law and Rules § 5225. The opinion text provided does not otherwise discuss such claims or identify a plaintiffs’ motion. Accordingly, the precise relationship between that final language and the securities-law rulings is unclear.