Microbot Medical, Inc. v. Alliance Investment Management, Ltd.

Background

Microbot Medical, Inc. brought a claim under Section 16(b) of the Securities Exchange Act of 1934 to recover short-swing profits from Joseph Mona. The opinion states that Mona was a beneficial owner of more than 10% of Microbot’s stock and purchased and sold Microbot stock within a six-month period. Microbot moved for judgment on the pleadings, which asks the court to decide a case from the pleadings when no material factual dispute remains, and moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss Mona’s counterclaim for failure to state a legally sufficient claim.

Mona’s counterclaim asserted claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5. He alleged that Microbot made misleading statements in its filings about its capital, that Chief Executive Officer Harel Gadot made misleading statements during an investor call, and that Gadot and investor-relations consultants Jeremy Roe and Tony Altavilla made other misleading statements. The opinion also notes that the court had previously granted Alliance Investment Management Ltd.’s motion for summary judgment and dismissed Microbot’s claims against Alliance; that earlier ruling was not the ruling decided in this memorandum.

Section 16(b) claim

The court adopted Magistrate Judge Robert W. Lehrburger’s report and recommendation and overruled Mona’s objections. It held that the parties did not dispute the elements of Microbot’s Section 16(b) claim: a purchase and sale of securities by a statutory insider within six months. The court rejected Mona’s argument that his transactions were “unorthodox” because they were allegedly based on fraudulent statements. Under the governing rule, traditional cash-for-stock transactions fall within Section 16(b); the exception for unorthodox transactions applies to transactions not ordinarily treated as purchases or sales, such as certain stock conversions, mergers, reorganizations, and dealings in options or warrants.

The court also rejected Mona’s unclean-hands defense and his argument that applying Section 16(b) would create an improper windfall. It explained that Section 16(b) imposes strict liability and serves a different purpose from provisions allowing compensation for economic loss. The court approved the use of the transaction-execution date, rather than the settlement date, to calculate the short-swing profits. It therefore concluded that no material factual issue remained and that Microbot was entitled to judgment as a matter of law in the amount of $484,614.30.

Mona’s counterclaim

The court granted Microbot’s Rule 12(b)(6) motion to dismiss Mona’s Section 10(b) and Rule 10b-5 counterclaim. It found that statements about the sufficiency of Microbot’s capital were protected by the Private Securities Litigation Reform Act’s safe-harbor provisions for certain forward-looking statements because they were identified as forward-looking and accompanied by meaningful warnings about dilution and liquidity risks.

The court held that the claim based on Gadot’s statement that Microbot had a five-year head start over competitors was time barred. It held that Gadot’s statement that Microbot’s shares were “extremely cheap” was an opinion and that Mona’s allegations did not satisfy the requirements for an actionable opinion-based securities-fraud claim. It also held that Mona failed to plead sufficient facts concerning statements by Roe and Altavilla, including facts showing that the statements were false, that the speakers lacked a reasonable basis, or, for some statements, that Mona reasonably relied on them.

Disposition

Judge George B. Daniels adopted the report and recommendation. The conclusion states that Microbot’s motion for judgment on the pleadings and motion to dismiss Mona’s counterclaim were granted, and judgment was entered for Microbot in the amount of $484,614.30. Mona’s counterclaim was dismissed with leave to attempt to replead only claims based on specified statements: Roe’s statements that Microbot’s shares would reach $10 and that he purchased 10,000 shares, and Altavilla’s statements about Gadot’s meetings with two Fortune 500 companies and an expected SCS partnership. The order allowed Mona to seek permission to replead by letter application with a proposed amended counterclaim by April 30, 2021, and set response and reply deadlines. The court also stated that Microbot’s alternative request to sever Mona’s counterclaim was denied as moot.