A New York federal court dismissed a claim under Section 10(b) of the Securities Exchange Act because the court found defendants had no duty to disclose the allegedly omitted information.
Plaintiffs, investors in defendant Authentidate, a provider of electronic postmark services, alleged that the company and its directors failed to disclose that the company failed to meet certain performance metrics in its preferred provider agreement with the United States Postal Service. The court rejected each of plaintiffs’ arguments that defendants had a duty to disclose their failure to meet the revenue metrics. First, the court found that Item 303 of Securities and Exchange Commission Regulation S-K, which requires that a registrant describe any known trends or uncertainties that have had a material impact on net sales or revenues, was irrelevant because plaintiffs failed to allege any facts making it plausible that the defendants’ omissions misleadingly indicated a specific future result or financial condition. The court also found that defendant’s February 2004 stock offering did not create a duty to disclose because defendant was not required to meet the revenue targets until months after the offering date. Finally, the court found that the factual allegations in the complaint did not demonstrate any prior statements which rendered the allegedly withheld information misleading. (In re Authentidate Holding Corp. Securities Litigation, 2009 WL 755360 (S.D.N.Y. March 23, 2009))