District Court Holds that Lead Plaintiff in Securities Class Action Suit may not have Purchased Shares Solely on a Foreign Exchange

By Lewis Tesser, Partner, and Timothy Nolen, Associate

A recent decision from the United States District Court for the Southern District of New York has recognized that, to sustain a securities class action suit, the lead plaintiff must have purchased its shares on a United States securities exchange.

The case, Clal Finance Batucha Investment Management, Ltd. v. Perrigo Co., 2011 U.S. Dist. LEXIS 110607 (S.D.N.Y. September 29, 2011), involved a class action suit against defendant-corporation for securities fraud.  The defendant filed a motion to dismiss, noting that the lead plaintiff purchased shares in defendant-corporation off of the TASE, the Tel Aviv Stock Exchange. The Court dismissed the lead plaintiff’s claim, but declined to dismiss the case outright. Rather, the Court allowed another party, who had purchased the shares on the NASDAQ, to intervene in the case as lead plaintiff.

Clal is an example of a critical issue in any suit: identifying the proper plaintiff. Because the original Clal class action plaintiff did not purchase the shares in the United States, they lacked standing under the Securities and Exchange Act. At Tesser, Ryan & Rochman, LLP, our attorneys can anticipate issues of standing to ensure that the correct parties are identified before suit or to raise claims based on the lack of proper standing.