Puddu v. NYGG, LTD.

Background

The plaintiffs brought a securities-fraud action on behalf of themselves and a proposed class of shareholders of 6D Global Technologies, Inc., formerly known as CleanTech Innovations, Inc. They alleged that Benjamin Wey and NYGG (Asia), Ltd. failed to disclose Wey’s relationship with 6D and NYGG (Asia). The alleged nondisclosure concerned Wey’s ownership and influence over 6D. After NASDAQ learned of Wey’s relationship with 6D, it halted trading and delisted the company. Trading later resumed over the counter, and the stock price fell from $2.90 per share when 6D was initially delisted to $0.21 after the delisting appeal was denied.

The plaintiffs sought certification under Federal Rule of Civil Procedure 23. The proposed class included persons and entities, other than the defendants and their affiliates, who purchased publicly traded 6D common stock from June 16, 2014, through September 10, 2015, or who purchased stock in private placements on September 29, 2014, or November 21, 2014. The Rosen Law Firm also sought appointment as class counsel. Benjamin Wey opposed certification, principally arguing that the plaintiffs had not adequately shown that class members relied on his alleged misrepresentations or omissions.

Class Certification

The court concluded that the proposed class satisfied Rule 23(a)’s requirements of numerosity, commonality, typicality, and adequate representation. The court noted that approximately 19.5 million 6D shares were held by the public at the end of the class period. It also found that the claims arose from common alleged omissions, that the named plaintiffs’ claims were typical of the class’s claims, and that the plaintiffs and their attorneys could adequately represent the class.

The court then considered Rule 23(b)(3), which requires common legal or factual questions to predominate over individual questions and requires a class action to be the superior method for resolving the dispute. In a securities-fraud case, reliance generally must be shown through a method applicable to the entire class. The plaintiffs argued that reliance could be presumed under the rule from Affiliated Ute Citizens of Utah v. United States for claims based primarily on material omissions. Under that rule, reliance may be presumed when omitted information was important enough that a reasonable investor might have considered it significant.

The court held that the plaintiffs could use that presumption because their claims were based primarily on the alleged failure to disclose Wey’s relationship with 6D. The court found that the alleged omissions were material, noting the allegation that Wey beneficially owned as much as 45 percent of 6D’s shares and significantly influenced the company’s operations. It also noted that NASDAQ delisted 6D after discovering Wey’s relationship with the company.

Wey argued that the claims were primarily based on earlier affirmative misrepresentations to NASDAQ and the Securities and Exchange Commission, rather than omissions. The court rejected that argument. It explained that the earlier statements were made in connection with CleanTech’s delisting appeal in 2011, three years before 6D acquired CleanTech and before the class period. The court determined that the actionable events were instead the later failures to disclose Wey’s relationship with 6D and NYGG (Asia).

Wey also argued that an expert report rebutted presumed reliance because 6D’s stock price did not move significantly on the trading day between a Securities and Exchange Commission announcement and 6D’s delisting. The court rejected this argument because evidence of price impact may be relevant to a different reliance theory based on the market’s response to public information, while the Affiliated Ute presumption does not depend on an efficient market or a change in stock price. The court therefore found that common questions about reliance predominated over individual questions.

Class Counsel

Under Rule 23(g), the court had to appoint class counsel after certifying the class. The court considered the Rosen Law Firm’s experience in securities class actions, its work representing the plaintiffs from the beginning of the case, and its ability to litigate the claims. The court found that the firm satisfied Rule 23(g) and would adequately represent the class.

Disposition

Judge Denise Cote granted the plaintiffs’ February 3, 2022 motion for class certification. The court certified the proposed class and appointed the Rosen Law Firm as class counsel. The opinion did not decide whether the defendants were ultimately liable for securities fraud.