IN RE BLOCK, INC. SECURITIES LITIGATION

Background

The court had previously combined two proposed securities class actions against Block, Inc. and individual defendants: Esposito v. Block, Inc. and Hart v. Block, Inc. It appointed Fotios Sotiropoulos as lead plaintiff and selected lead counsel. The cases concerned allegations that Block failed to disclose weaknesses in its security protocols and a December 2021 data breach involving information from up to 8.2 million Cash App customers. The plaintiffs alleged that Block’s stock price fell after the company announced the breach on April 4, 2022.

Official Intelligence Pty Ltd. later filed a third proposed class action against Block, Jack Dorsey, and Jim McKelvey. It asserted claims under Sections 12(a) and 15 of the Securities Act based on allegedly inadequate disclosures. Official Intelligence objected to consolidating its case with the other two cases and sought appointment as lead plaintiff and approval of its selected law firms as lead counsel.

Consolidation

Judge Abrams held that consolidation was appropriate under Federal Rule of Civil Procedure 42(a) because all three cases involved common factual and legal questions. The complaints relied on overlapping public statements and reports, addressed Block’s security practices and the December 2021 breach, and alleged financial harm after disclosure of the breach. Differences in the statutes invoked, the individual defendants named, and the specific claims did not prevent consolidation.

The court denied Official Intelligence’s objections to consolidation and ordered all three cases consolidated under Master File No. 22-cv-8636.

Lead Plaintiff for Securities Act Claims

The Private Securities Litigation Reform Act generally creates a presumption favoring the proposed plaintiff with the largest financial interest who satisfies the requirements of Rule 23, including adequacy and typicality. Official Intelligence argued that Sotiropoulos was not adequate to represent the Securities Act claims because he lacked standing to bring every claim and had not adequately preserved those claims.

The court rejected the argument that Sotiropoulos was inadequate merely because he might not have standing for every claim. A lead plaintiff need not personally have standing to bring every claim asserted for the class, and other named plaintiffs may be added to represent claims for which the lead plaintiff lacks standing.

The court nevertheless found that Official Intelligence had shown a lack of diligence concerning the Securities Act claims. Hart’s complaint alleged that he acquired Block securities through Block’s acquisition of Afterpay, but Hart’s required certification stated that he acquired Block shares on December 2, 2021—before the acquisition occurred. The court said this contradiction created significant doubt about Hart’s standing to bring the Securities Act claims.

The court also noted that Sotiropoulos had not filed an amended complaint adding a plaintiff with clear Securities Act standing before the one-year limitations period expired on April 3, 2023. The court did not finally decide whether Hart had standing or whether the claims could be preserved through tolling. Instead, it held that Sotiropoulos’s failure to address those issues before the deadline showed insufficient diligence and rebutted the presumption that he should lead the Securities Act claims.

The court therefore granted Official Intelligence’s motion for appointment—or, as the court construed it, substitution—as lead plaintiff for the Securities Act claims. Sotiropoulos continued as lead plaintiff for the Exchange Act claims.

Lead Counsel and Directives

The court granted Official Intelligence’s motion to approve Abraham, Fruchter, & Twersky, LLP and Bronstein, Gewirtz & Grossman, LLC as co-lead counsel for the Securities Act claims. The approval was subject to the firms’ filing a joint plan for dividing litigation responsibilities. The court directed them to file that plan by March 1, 2024, including a proposed schedule for an amended complaint, and warned that it would not approve duplicative expenses.

Disposition

The objections to consolidation were denied. The motion for appointment or substitution as lead plaintiff was granted as to the Securities Act claims, and the motion to approve co-lead counsel was granted. The clerk was directed to terminate the specified pending motions.