In re Silver Lake Group, L.L.C. Securities Litigation

Background

Walleye Opportunities Master Fund Ltd. and Walleye Manager Opportunities LLC, identified as the lead plaintiff, alleged that BC Partners, Silver Lake, David McGlade, and related defendants traded Intelsat S.A. stock while possessing material, nonpublic information. The claims arose under Section 10(b) of the Securities Exchange Act, Rule 10b-5, and Section 20A. The lead plaintiff also alleged that Svider and Bateman were control persons liable under Section 20(a).

The alleged information concerned a possible private auction of Intelsat’s C-Band spectrum for use by 5G providers. The complaint alleged that, after a November 5, 2019 meeting with Federal Communications Commission officials, McGlade, BC Partners, and Silver Lake sold about $246 million of Intelsat stock in a private block sale. Intelsat’s stock price later declined after information emerged that the private-auction proposal faced weaker prospects and the Federal Communications Commission would conduct a public auction.

Analysis

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. For the Section 10(b) and Rule 10b-5 claims, the lead plaintiff had to plead particular facts showing that the defendants possessed material, nonpublic information and acted with scienter—that is, an intent to deceive, manipulate, or defraud, or deliberate recklessness. The court also applied heightened pleading requirements for securities-fraud claims.

The court rejected the argument by BC Partners and McGlade that the lead plaintiff lacked statutory standing because it had not alleged that it purchased stock in the defendants’ private block sale. The court held that the allegations that the lead plaintiff purchased Intelsat stock on November 5 and 6, 2019 were sufficient, at least at the pleading stage, to allege contemporaneous trading. The court therefore denied in part the defendants’ motions to dismiss on that issue.

The court nevertheless concluded that the complaint did not adequately allege that the defendants possessed material, nonpublic information when they made the block sale or that they acted with scienter. The confidential-witness allegations did not reliably establish that the November 5 meeting conveyed such information. The court also noted that Silver Lake was not represented on Intelsat’s board, the shareholders agreement limited the information Intelsat could provide to Silver Lake, and the allegations did not sufficiently show that the defendants’ trading was dramatically inconsistent with their prior trading practices. The timing and size of the sale were relevant, but they were not enough by themselves.

Because the lead plaintiff failed to state a Section 10(b) claim, the court also concluded that it failed to state a Section 20(a) control-person claim. Section 20(a) requires a primary securities-law violation before control-person liability can be imposed.

Ruling

The court granted in part and denied in part the defendants’ motions to dismiss. It granted the motions to dismiss the lead plaintiff’s insider-trading claims and granted the motion to dismiss the Section 20(a) claim, each with leave to amend. The court granted the lead plaintiff leave to file a second amended complaint by October 28, 2022. Defendants were required to answer or otherwise respond within 30 days after an amended complaint was filed. Judge Jeffrey White also set a case-management conference for January 6, 2023, if the lead plaintiff amended its complaint.