On June 13, 2017, Judge Vernon S. Broderick of the United States District Court for the Southern District of New York dismissed a putative securities class action against gold mining and exploration company Pretium Resources, Inc. (“Pretium”) under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In re Pretium Resources Inc. Sec. Litig., No. 13-CV-7552 (VSB), 2017 WL 2560005 (S.D.N.Y. June 13, 2017). Plaintiffs alleged that Pretium’s press releases were misleading because they contained statements regarding a major gold exploration site that were contrary to views expressed to the company by its consultants. The Court held that plaintiffs had failed to identify actionable misrepresentations or omissions and to adequately plead scienter.
Among the statements that plaintiffs challenged as misleading were (i) the company’s disclosures of drilling results in a particular mineral vein, because they allegedly omitted to state that the vein was not representative of the broader site, and (ii) the company’s predictions that the site would become a high-grade, high-production mine, because Pretium did not disclose its consultants’ concern that the site would not be economically viable.
The Court found that the alleged omissions related to Pretium’s disclosures of drilling results were not actionable because the company had “substantially disclosed” the allegedly omitted information—including a detailed map showing geological features of the site and by noting that the vein was located “in an area of projected extreme grade mineralization,” suggesting that the grade mineralization for the vein was exceptionally high in relation to the broader site. The Court explained that because “the same documents on which the [complaint] relies for the purported misstatements disclose the information Plaintiffs claim Pretium to have omitted,” the purported omissions were not actionable as a matter of law. Slip op. at 19–20. The Court also held that Pretium’s predictions that the site would be successful were not actionable because they were honestly held opinions, and rejected plaintiffs’ argument that the statements were actionable because they omitted contradictory information. In this regard, the Court held that although Pretium was aware of its consultants’ more pessimistic view, Pretium’s SEC filings disclosed that estimating mineral reserves is a subjective process. Moreover, the Court emphasized that the company was “entitled to investigate potentially negative information before making statements to the market” (slip op. at 26), and that the period Pretium took to investigate before disclosing the disagreement (no more than four months) was reasonable.
The Court further held that the complaint failed to adequately plead scienter. The Court noted that, in the absence of allegations of deliberate illegal behavior, plaintiffs were required to show recklessness, which required them to demonstrate motive and opportunity to commit fraud. In support of motive, plaintiffs alleged only that the site was critical to the company’s economic future and that its CEO’s employment contract contained an annual performance bonus based on market capitalization. With respect to the supposedly critical nature of the site, the Court held that, although there was no post-PSLRA controlling Second Circuit authority on the issue, allegations that the purported misstatements related to a defendant’s “core operations” could not be considered as an independent means to plead scienter (id. at 16); therefore, the motivation of a corporation to prevent a drop in stock price—even one threatening the “survival” of the company—is “far too generalized” to plead scienter. Id. at 28. With respect to the CEO’s performance incentives, the Court explained that such an alleged motive was common to most corporate officers and fell short of the “concrete and personal” benefit necessary to plead motive (such as sale of company stock prior to corrective disclosures, or directly profiting from alleged misstatements or omissions). The Court further noted that plaintiffs’ allegations based on the consultants’ disagreement with the company’s projections for a successful mine could not support scienter because “differences of opinion, even stark differences” do not establish scienter. Id. at 29.
This case reinforces that mere awareness of information potentially contradicting an honestly held opinion will not support an omission theory of liability and provides support for the position that, post-PSLRA, scienter cannot be pleaded based solely on allegations that the disclosures at issue concerned the defendant’s “core operations.”
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