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

Background

Microbot Medical, Inc. sued Joseph Mona under Section 16(b) of the Securities Exchange Act of 1934, alleging that Mona bought and sold Microbot stock within a six-month period while owning more than 10% of the company’s stock. Mona counterclaimed under Section 10(b) of the Act and Securities and Exchange Commission Rule 10b-5, alleging that Microbot made material misstatements or omissions that induced him to purchase Microbot stock.

Mona’s counterclaim focused on three statements allegedly made by Microbot consultants Jeremy Roe and Tony Altavilla: Roe’s August 7, 2017 statement that Microbot’s shares would reach $10; Altavilla’s October 2, 2017 statement that Microbot’s chief executive officer was meeting with two Fortune 500 companies; and Altavilla’s October 10, 2017 statement that Microbot expected to sign a partnership involving its Self-Cleaning Shunt product.

Microbot moved for summary judgment, which asks whether the undisputed evidence requires judgment for one side without a trial. Magistrate Judge Robert Lehrburger recommended granting the motion and dismissing Mona’s counterclaim with prejudice. The district court reviewed the report and the parties’ objections.

Ruling

The court adopted Magistrate Judge Lehrburger’s report in full, granted Microbot’s motion for summary judgment, and dismissed Mona’s counterclaim with prejudice.

Reasoning

A Section 10(b) and Rule 10b-5 claim requires proof of, among other things, a material misstatement or omission, a connection between that statement and the securities transaction, reliance, economic loss, and loss causation. Loss causation means a sufficient connection between the alleged misconduct and the economic harm claimed by the investor.

The court held that Mona did not produce evidence creating a genuine factual dispute about loss causation. Mona relied primarily on his assertion that he sold all of his Microbot stock on February 19, 2019, for a net loss of $150,954. The court found that this assertion, without supporting analysis or evidence tying the loss to the alleged statements, was insufficient to survive summary judgment.

The court also emphasized that Mona made money when Microbot’s later Securities and Exchange Commission filings allegedly disclosed information correcting the earlier statements. The company’s stock price rose while Mona was selling shares, and he incurred no losses during the periods following those filings. In the court’s view, his profits after the alleged corrective disclosures defeated his claim that the misstatements caused his losses.

The court noted that a reasonable jury could have found that Mona relied on Roe’s August 7 statement and Altavilla’s October 10 statement, but not Altavilla’s October 2 statement. That possible reliance did not change the result because Mona still lacked evidence of loss causation. The court also noted an additional reason concerning Roe’s August 7 forward-looking statement: the statement could receive protection under the federal securities-fraud safe-harbor provision absent evidence that Roe actually knew it was false or misleading.

Other Procedural History

Before this ruling, the court had granted Microbot judgment on the pleadings on its Section 16(b) claim and awarded Microbot $484,614.30. The court had also dismissed Mona’s original counterclaim while allowing him to replead claims based on the three consultant statements. This opinion addressed Microbot’s later summary-judgment motion directed at the amended counterclaim.