Tollen v. Geron Corporation

Background

Michael Tollen filed a proposed securities class action against Geron Corporation and John A. Scarlett. Eugene Connor later filed a second related class action against the same defendants. The complaints alleged violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

The allegations concerned Geron’s statements about imetelstat and its IMbark clinical study. According to the allegations, Geron highlighted positive study metrics during an investor call and in financial statements rather than primary endpoint data or other less favorable metrics. The complaints alleged that Geron later announced the drug’s failure and related data, after which its stock price fell. The order did not decide whether these allegations were true.

Eight candidates initially sought appointment as lead plaintiff under the Private Securities Litigation Reform Act. Several withdrew their motions, and Tak Wing Yuen stated that he did not oppose another candidate. The remaining candidates were Dr. Robert Ham and Julia Junge and Richard Junge.

Consolidation

Federal Rule of Civil Procedure 42(a) permits consolidation when actions share common questions of law or fact. The court found that the two complaints involved the same alleged announcements about imetelstat and IMbark, asserted the same types of federal securities claims, and covered the same class period. The court therefore granted the motion to consolidate.

Lead Plaintiff Analysis

The Private Securities Litigation Reform Act requires the court to appoint the class member most capable of adequately representing the class. The court explained that this normally involves identifying the candidate with the largest financial interest and determining whether that candidate satisfies the typicality and adequacy requirements of Rule 23.

The Junges reported purchasing 148,336 shares during the class period and suffering an estimated net loss of $457,253.74. Dr. Ham reported purchasing 405,403 shares and suffering an estimated net loss of $282,994.39. Because the Junges reported the larger estimated loss, the court treated them as presumptively the most adequate lead plaintiffs.

The court found that the Junges’ claims were typical because they arose from the same alleged conduct and legal theories as the claims of other class members. The court also found them adequate representatives. Although Dr. Ham raised concerns about the Junges’ initial submissions, their later joint declaration and handwritten questionnaire provided additional information about their backgrounds, relationship, investment, and understanding of their responsibilities. The court concluded that the Junges understood that they—not their lawyers—would manage the litigation and direct lead counsel.

Rulings and Counsel-Selection Procedure

The court appointed Julia Junge and Richard Junge as lead plaintiffs and denied the motions of the other parties for appointment as lead plaintiff. The order stated that the Junges must interview and evaluate potential class counsel, consider factors such as counsel’s fees, experience, proposed litigation strategy, and ability to finance the case, and seek the court’s approval of their selection. The order invited applications for lead counsel and set deadlines for applications, selection, and the motion seeking approval.

The order addressed case management and class-representation issues; it did not resolve the underlying allegations that Geron or Scarlett violated federal securities laws.