Late last week, Judge Engelmayer in the Southern District of New York accepted a voluntary dismissal of a securities class action, but the dismissal was anything but routine. Instead, it was accompanied by a twenty-five page opinion & order which serves as an important warning to plaintiffs’ counsel in securities class action cases regarding the investigation process that often precedes securities class action complaints.

In In re Millennial Media, Inc. Securities Litigation, the plaintiffs alleged that executives of Millennial Media, Inc. engaged in securities fraud by releasing false and misleading information that artificially inflated the stock price. In an effort to satisfy the heightened pleading requirements under federal securities law, the complaint relied upon information and direct quotes from eleven “Confidential Witnesses” or “CWs.” However, the vast majority of these witnesses never spoke with plaintiffs’ counsel before the complaint was filed, though ten of the CWs had been interviewed by an investigator employed by plaintiffs’ counsel. After filing the complaint, plaintiffs’ counsel sent a copy of it to each CW, at which point one of them promptly requested that all attributions to him be removed. This request led to further inquiry from the Court as to the accuracy of the statements in the complaint, and revealed additional facts that the court found to be “unsettling.”…
Continue Reading Judge Cautions Plaintiffs’ Counsel to Exercise Proper Diligence in Drafting Securities Class Action Complaints