April 8, 2024
Willkie successfully secured the dismissal on appeal of claims against SMBC Nikko Securities America, Inc. in a securities class action arising out of ViacomCBS’s $3 billion secondary public offering in March 2021. SMBC Nikko served as one of multiple underwriters in a syndicate for the offering.
A panel of the Appellate Division of the Supreme Court, First Judicial Department, reversed the trial court’s denial of SMBC Nikko’s motion to dismiss, holding that SMBC Nikko could not be held liable for failure to disclose information that it did not know regarding the alleged trading activities of other banks in the syndicate. This is a rare instance where some but not all of the underwriter banks in a syndicate are dismissed from a securities class action at the motion to dismiss stage.
Plaintiffs filed suit in New York Supreme Court, Commercial Division, alleging that, prior to the offering, certain underwriter banks—not SMBC Nikko—held total-return swap positions referencing ViacomCBS stock with the now defunct family hedge fund Archegos Capital Management. Plaintiffs allege that those underwriter banks sold large blocks of ViacomCBS stock that they had purchased to hedge the swap positions. The block sales purportedly caused the price of ViacomCBS stock to fall shortly after the offerings, prompting plaintiffs to file suit under the Securities Act of 1933. Plaintiffs allege that the offering documents were false and misleading because they allegedly failed to warn investors about these potential sales.
In February 2023, the trial court denied all of the underwriter defendants’ motions to dismiss, but granted the issuer ViacomCBS’s motion to dismiss. For SMBC Nikko, Willkie argued that the allegedly omitted information was not “known or knowable” to SMBC Nikko at the time of the offering, because plaintiffs did not allege that SMBC Nikko could have known about the other banks’ potential trading. Nevertheless, the trial court determined that SMBC Nikko and other so-called “non-trading underwriters” had an affirmative obligation under the ’33 Act to perform some level of due diligence on all of the other underwriters in the syndicate and ascertain whether any of them had conflicts of interest.
SMBC Nikko and the other underwriter defendants appealed the trial court’s decision. On April 4, 2024, a panel of the First Department reversed the ruling as to SMBC Nikko, the other non-trading underwriters, and certain other underwriters. The appeals court held that SMBC Nikko could not be held liable for failure to disclose information that it “did not know” and could not know about, including trading activities of the other underwriters.
The Willkie litigation team was led by partners Todd Cosenza and Brady Sullivan and included associates Madeleine Tayer and Samuel Hurst-MacDonald.
A panel of the Appellate Division of the Supreme Court, First Judicial Department, reversed the trial court’s denial of SMBC Nikko’s motion to dismiss, holding that SMBC Nikko could not be held liable for failure to disclose information that it did not know regarding the alleged trading activities of other banks in the syndicate. This is a rare instance where some but not all of the underwriter banks in a syndicate are dismissed from a securities class action at the motion to dismiss stage.
Plaintiffs filed suit in New York Supreme Court, Commercial Division, alleging that, prior to the offering, certain underwriter banks—not SMBC Nikko—held total-return swap positions referencing ViacomCBS stock with the now defunct family hedge fund Archegos Capital Management. Plaintiffs allege that those underwriter banks sold large blocks of ViacomCBS stock that they had purchased to hedge the swap positions. The block sales purportedly caused the price of ViacomCBS stock to fall shortly after the offerings, prompting plaintiffs to file suit under the Securities Act of 1933. Plaintiffs allege that the offering documents were false and misleading because they allegedly failed to warn investors about these potential sales.
In February 2023, the trial court denied all of the underwriter defendants’ motions to dismiss, but granted the issuer ViacomCBS’s motion to dismiss. For SMBC Nikko, Willkie argued that the allegedly omitted information was not “known or knowable” to SMBC Nikko at the time of the offering, because plaintiffs did not allege that SMBC Nikko could have known about the other banks’ potential trading. Nevertheless, the trial court determined that SMBC Nikko and other so-called “non-trading underwriters” had an affirmative obligation under the ’33 Act to perform some level of due diligence on all of the other underwriters in the syndicate and ascertain whether any of them had conflicts of interest.
SMBC Nikko and the other underwriter defendants appealed the trial court’s decision. On April 4, 2024, a panel of the First Department reversed the ruling as to SMBC Nikko, the other non-trading underwriters, and certain other underwriters. The appeals court held that SMBC Nikko could not be held liable for failure to disclose information that it “did not know” and could not know about, including trading activities of the other underwriters.
The Willkie litigation team was led by partners Todd Cosenza and Brady Sullivan and included associates Madeleine Tayer and Samuel Hurst-MacDonald.
