On March 24, 2025, Judge Rita F. Lin of the United States
District Court for the Northern District of California granted in
part and denied in part a motion to dismiss a putative class action
against a technology company (the "Company") and certain
of its officers. Ami-Government Emps. Provident Fund Mgmt. Co.
LTD., et al., v. Alphabet Inc., et al., No. 23-cv-01186-RFL
(N.D. Cal. March 24, 2025). We previously covered the Court's decision
dismissing plaintiffs' initial complaint without prejudice. In
their amended complaint, plaintiffs asserted claims for violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
(the "Exchange Act") and SEC Rule 10b-5 based on alleged
misrepresentations regarding the Company's digital advertising
technology business and support of user privacy. The Court held
that plaintiffs had adequately pleaded their claims with respect to
congressional testimony by the Company's Chief Executive
Officer, which stated that in the Company's advertising auction
platform, the "channel through which a bid is received does
not otherwise affect the determination of the winning bidder,"
because plaintiffs had adequately alleged that the auctions in fact
favored bids submitted through certain platforms and that the CEO
was sufficiently involved in negotiations regarding these platforms
to have the requisite state of mind. The Court otherwise dismissed
the remainder of plaintiffs' claims with prejudice.
The Company owns and operates the leading publisher digital
advertising server, as well as the leading digital advertising
exchange that allows potential advertisers to instantaneously bid
through an electronic auction for advertising space on its server.
Plaintiffs alleged that the Company manipulated bidding in auctions
that took place on these platforms and misrepresented its practices
to investors, causing them to sustain losses when those practices
were revealed.Plaintiffs challenged two categories of alleged
misstatements: (i) alleged statements made in a September 14, 2020
written response to a question posed to the Company's CEO when
he testified before Congress regarding how the Company's
advertising technology products worked, and (ii) alleged statements
posted on the Company's website on September 29, 2020
concerning the bidding process on the Company's platform, which
were not attributed to any individual but contained language
similar to the CEO's written testimony.
Turning first to the congressional testimony, the Court determined
that plaintiffs had sufficiently pled that the statement that
"the channel through which a bid is received does not
otherwise affect the determination of the winning bidder" was
false because the complaint identified a contract that purportedly
extended to the counterparty certain benefits in the auction
process, including additional time to submit bids, greater access
to information about the consumer to whom the impression was
targeted, and having their bid data shielded from the Company's
post hoc bid analysis that allowed the Company to outbid other
auction participants.The Court also held that plaintiffs had
adequately alleged the requisite state of mind, reasoning that the
CEO was allegedly aware of the terms of the contract and the
advantages that the counterparty received, and therefore allegedly
knew his statement was false.
Turning next to the website statements, the Court held that
plaintiffs adequately alleged that a statement that "[a]ll
participants in the unified auction . . . compete equally for each
impression" was false, noting the alleged contract that
purportedly provided participants in the auction with significant
advantages.The Court also held that the statement was material
because it related to issues that were the subject of
near-contemporaneous congressional testimony by the CEO and
implicated one of the Company's top revenue sources.However,
the Court held that plaintiffs failed to plead scienter as to the
website statements because they failed to allege that any of
defendants made the statements, reasoning that, although
the statements were similar to those made in the CEO's
congressional testimony, plaintiffs could not link the CEO to the
statements, nor could the CEO's scienter be attributable to the
Company, because plaintiffs had not alleged any facts demonstrating
the CEO knew of the website statements.The Court noted that "a
company does not commit securities fraud every time there is a
significant error somewhere on its website that it inconsistent
with facts known to the CEO." Accordingly, the Court dismissed
the claims based on the website statements with prejudice.
Finally, the Court determined that plaintiffs adequately alleged
loss causation with respect to the surviving misstatement, noting
that when regulatory actions were brought against the Company
arising from alleged "rigging of auctions" in its digital
advertising business, the Company's stock price declined.
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