In re SelectQuote, Inc. Securities Litigation

Background

SelectQuote, Inc. was an online insurance broker specializing in Medicare Advantage policies. It held its initial public offering in 2020 at $20 per share; on November 17, 2022, its stock traded at 73 cents. Plaintiffs sued SelectQuote, two of its chief officers, and people who signed the registration statement, asserting claims under the Securities Act and the Securities Exchange Act.

The dispute concerned revenue from commissions that SelectQuote expected to receive when customers renewed insurance policies. SelectQuote used “persistency ratios” to estimate how many policies would continue from one year to the next. The complaint alleged that the company inflated revenue by using excessively high persistency rates and repeatedly failing to adjust those rates based on its experience. Plaintiffs also alleged that aggressive sales methods and poorly trained sales personnel should have been expected to make renewals less predictable.

Court’s Analysis

The court held that the allegations about persistency and revenue described forward-looking predictions rather than misstatements of existing facts. The court also held that general statements about the skills or training of sales personnel were not actionable. Because the First Amended Complaint treated those predictions and statements as misrepresentations, the court found it legally insufficient on those points.

The defendants separately argued that the allegations of scienter—the required showing that defendants acted with a legally sufficient wrongful intent—were inadequate for the Securities Exchange Act claims. The court identified that issue as another possible ground for dismissal but stated that it could be considered in connection with a Second Amended Complaint.

The court also agreed that the allegations against Brookside Equity Partners LLC under Section 20(a) of the Exchange Act were inadequate. That claim requires a primary violation, control of the primary violator, and meaningful culpable participation in the alleged fraud. The court stated that the allegations did not adequately plead the required control. Plaintiffs’ Count II claim concerning trading on insider information was also confusing and unclear about what nonpublic information defendants possessed, who possessed it, and when.

Disposition

The court granted the motion to dismiss and allowed plaintiffs to file a Second Amended Complaint by May 31, 2024. The order did not state that the dismissal was with or without prejudice. It also directed the Clerk to terminate the open motions at ECF Nos. 50, 53, 55, and 56.

Classification

This is a procedural order because the court ruled on a motion to dismiss based on the legal sufficiency of the pleadings and allowed repleading, rather than deciding the underlying securities claims on their merits.