IN RE: KIRKLAND LAKE GOLD LTD. SECURITIES LITIGATION

Background

Stephen Brahms brought the case individually and on behalf of others similarly situated against Kirkland Lake Gold Ltd., its chief executive officer Anthony Makuch, and its former board chairman Eric Sprott. The claims arose under Section 10(b) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rule 10b-5, and Section 20(a) of the Exchange Act. Brahms alleged that Kirkland and Makuch made misleading statements and omissions during the period from January 8, 2019, through November 25, 2019, causing Kirkland securities to trade at artificially inflated prices. He also alleged that Makuch and Sprott were controlling persons under Section 20(a).

Kirkland had announced on November 25, 2019, that it had agreed to acquire Detour Gold Corporation. According to the amended complaint, Kirkland was actively considering and conducting due diligence on the acquisition before the announcement. Brahms alleged that Kirkland’s public statements about acquisition standards, business strategy, operations, internal controls, and projected performance misled investors into believing that Kirkland was not considering an acquisition like Detour’s. Defendants moved to dismiss the amended complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately alleges a legally recognized claim.

Rulings on Acquisition Statements

The court held that Brahms adequately alleged that Kirkland and Makuch may have materially misled investors by discussing acquisitions and downplaying them as a method of growth while Kirkland was actively considering Detour. The court explained that when a company speaks publicly about a subject, it may have to provide a truthful and complete account, even if it otherwise had no independent duty to disclose the information. Whether the statements and omissions were materially misleading was left for the factfinder.

The court also held that Brahms adequately alleged the required state of mind, known as scienter, for the acquisition-related nondisclosure. Under the securities-fraud pleading rules, scienter requires particularized facts supporting a strong inference that defendants acted with the required state of mind. Taken together, the allegations that Makuch knew about the Detour discussions and made statements about acquisition standards and growth supported that inference at the dismissal stage. The motion to dismiss was therefore DENIED as to Makuch’s acquisition-related statements identified in the amended complaint.

Dismissed Categories

The court GRANTED the motion to dismiss claims based on Kirkland’s statements about its business strategy. It found that the complaint did not show Kirkland had stopped pursuing its stated strategy of low-cost, high-margin production, and the statements did not promise that Kirkland would never pursue an alternative strategy or acquisition.

The court also GRANTED the motion to dismiss claims concerning Kirkland’s ongoing operations and performance. Brahms did not allege that the statements were false when made; instead, he argued that the later Detour acquisition made earlier descriptions misleading. The court rejected that theory as impermissible “fraud by hindsight.”

The court GRANTED the motion to dismiss claims concerning internal controls and compliance with accounting standards because the complaint offered conclusory assertions without explaining how Kirkland’s controls were deficient or identifying problems with the financial results disclosed to investors.

The court GRANTED the motion to dismiss claims based on projections and guidance about future performance. Brahms did not allege specific facts showing that Kirkland’s projections relied on improper information or that defendants contemporaneously knew contradictory facts. The court did not reach Kirkland’s separate argument that the statutory safe harbor for forward-looking statements barred these claims.

Sprott’s Liability and Disposition

The court GRANTED the motion to dismiss the claims against Sprott. Brahms’s scheme-liability theory required an inherently deceptive act distinct from the alleged misstatements, but the complaint did not identify such an act by Sprott. Remaining silent while Kirkland made statements and secretly acquiring a position in Detour, without more particularized allegations about Sprott’s role in shaping the statements or affecting Kirkland’s securities market, was insufficient. The court also dismissed the Section 20(a) controlling-person claim because Brahms did not adequately allege that Sprott was meaningfully culpable in the alleged fraud.

Final Order

Judge J. Paul Oetken ordered that Defendants’ motion to dismiss was GRANTED as to the statements about business strategy, ongoing operations and performance, internal controls and accounting standards, and future projections; DENIED as to Makuch’s acquisition statements; and GRANTED as to the claims against Sprott. The clerk was directed to close the motion at Docket Number 29.