on cat{tin...Calli.utft seped as rhe chief Financial oific€! of Calectin duling the class period. Doc. No. [1111, p 10, 'l 17. Mauldin served as a dircctor of Galectin during the

IN THE UNITED STATES DISTRICTCOURTIOR THE NORTHIRN DISTRICT OF CEORGIA

ATLANTA DIVISION

IN RE GALECTINT1IERAPEUTICS, INC.SECURITIES LITIGATTON

CIVILACTION NO.1:15{V-29-SCJ

ORDER

This marrer appears before the Court on cat{tin Thcrapeutic,

Inc. ("Galdin"), lames c. Czirr, Rod D. Martin, peter G. T.aber, lack W.

Cauicutt, dd John L Mauldin's Motion ro Dis(iss (De. No. [jj7]) anil toxFund L.P's ("10x Fund") Motionto Disnjss (Doc. No.I sl) Delendanismove

to dismisswith prejudice theCoreolidated Class Action Complainr (,,CCAC,,)

(Dft. \o llrll) for failure to srare a claih upon whi.h .etief may be granr€d

pursuant to Fcdclal Rule of Civil Procedure 12(bX6), tederat Rute ol Civil

Prc.edure 9(b), and the Private Se.urities Litigation Reforfr Act of 1995

('asl.RA"),15 U.S.C 55 78u,4,78u 5

Case 1:15-cv-00029-SCJ Document 130 Filed 12/30/15 Page 1 of 23

I. FACTUAL BACKGROUND'

On July 30,2014, Marissa Ball€steros, individually and on behalf of all

otheasimilarlysituated, filed aComplaintin the UnitedStatesDistrictCo!rtfor

the Disbi.t of Ncvada againsi caldti4 Czirr, Iraber, ancl Ca icutt all€ging

violations of Se.tions 10(b) and 20(a) of the S{uriries tx.hange Aci of t934

("Exchange Acf'). Dd. No. [1] On AuSust 21, 2014, upon stiputation oI rhe

parties, the UniledStatcs Dist.ictCourtfor the Districr of Nevada cotuolidared

the action fled by Ballesteros with hvo other putative se.ur ies class actjons

brought by shafeholdcF of cal{tin against rhe same .tefendants. Doc. No. [71.

Ihe consolidated cases were caption€d "tn .e cale.tin Tterapelrics, tn..

q.€drer v. t .\. Dcp r or rledlth dnd HJman \pw.. C1. fof Dr,ed,e Cont.ot dn

S<u.itics Litigation " Dft. No.14.

On Septcmber 3,2014, cat(tin, Czirr, Traber, and Callicun fited an

unoppos€c1 motion in thcsecuritics ctass action with rhe United States District

"ln rulingon a l2(b)(6) notioo the Court a.ceprs the fa.tual altegations inrh',ompldinllsr,upJno.onrrruArher r rh- t,8rrm;- ar ordbh. ro tLe Ftd,nr,IIlcrrrrron b2J l: ld I37.I l7o I rh Cir 20r0r Wtr,t-r,'."Couna..eptstrr.r..ru-J

rruF dnJ ionltrup! rhem in rhc l,ghr mo<r fd\orrblF.o ftd,ir,,.,.suitrci tiduJ .tdims dre.ubrRt to h",gnrenpd picddinS, .tanddrds lnar mu.r b_nrl lo.un rre c mohon ro Ji.mr-s InreAIGAdvrsorcroupSe.unriAt,lrzarron..,u- r. ap! \ crr.4el lzno ( rr 4uqj. tldrntrl musl ptrad wilh pd-.-ula w rhcrin um.lcr,es.on,lirur,ng f.dud. Ll


Court lor the District of Nevada to transfer venue to rhe United States Dishict

Court for the Northem Dishict of ceorgia. Doc. No. 1231. On September 29,

2014, Cal€tin, Traber, Cznr, Callicun, Marrirr Mauldin, and additional

defendants in a rclated derilative action filed a se.ond unopposed notion io

hanster venue to the United States District Court for the Northern Disbict oI

Ceorgia. DG. No. [27j. Ttc Unit€d Stares Disbict Courr for the Distri.t of

Nevada granted the motions and transfened venue to thc United Sta tes Distfict

Court for the Northem Distrid of ceo€ia on lanuary 5, 2015. Do.. No. [85j

Aitef traNfcr of venue, on March 24, 2015, the Court granted Movant ctyn

Hotz's Motion for Appointmentas t€ad Plaintiffand his Seldrion of Counset,

which was filed in the Unired Stat€s Dishict Court fo! rhe District of Nevada

prior to transler of venue. Do..No l10al.

on May 8,2015, ltad Plaintiff I Iotzfiled the CCAC agaist Cal<tin, t0X

Fund, Czir, Martirr Traber, Calli.utt, and Mauldin alleging violations of the

Ex.hangeAct. Doc. No.11111. The CCAC includes three counts for violarions

or dr Ex.hang. Actr(1) Colnt I-Violatio6 of S(tion 10(b)of the Exhange Act

and Rule 10b,5(b) promulgared thereundcr (2) Count l]_Violarions of

S{iion l0(b) of the Ex.hang€ Act and Rulcs 10b,5(a) and (.) p.omutsated


thereunde., and (3) Counl lll Violations of Section 20(a)of r}lc Ex.hange Acr

IntheCCAC, Plaintiffseis forth rhe fouowhg {actual a ll€garions.

I.ad Plaintiff Holz pur.hased shares ot cal<tin.ommon st6k during rhe

.lass period of October 25, 2013, through Iuly 28,2014, and suffered losses as a

result of the conduct set forth in the CCAC. Doc. No. [1]ll, p. 7, 1 u.lncorporaled in the State of Nevada and headqudtered in Norcross, Georgia,

Caletin is a biot(hnoloAy company engaged in the .esearch of galectin proteins

1o develop therapies for cancer and non,aLoholic sreatohepatitis (,,NASH,,), or

fatty liver diseasc wth advanced fibrosis. Doc. No. [1 I I I, p. 7, ll 12. 10X Fund

and its general partner, 10X Capital Management, LLC, were cclounded bICzirand Martin in 2008 as a rehnotos/,feused hedge fund headqua.tered in

Niceville, Floida Do.. No. 11111, p. 7, !l 13. As of March 20, 201s,10X Fund

owned allof lhe issued and outstanding shares of cal{tin Series B prefcrcd

stock,aswellaswa.rants€lercisablctopurchaseadditionalcommonst€k. Doc.

rvo. [111 ], p. & f 13. Czirr was a managing parrner of 10X Fund and seNed as

Er{utivc Chairman of calerin's Board of Dnectors du.ing rhe .lass period.

Dc. No. [111], pp. 8 t 11 13-14. Marrinwas also a managing partnerof toxFund and served as Vice Chai.nan of calsrin s Boa.d oi Direro6 du.ing the


class period. Dd. No. [111], pp. 8-9, f f 13, 15. Iraber served as President, chief

Exe.utiveOfficer,ChiefMcdicalOfficer,anddirecro.ofcal(tinduringtheclass

period. Dc. No. 1111j, p. 9, f I 6. Calli.utft seped as rhe chief Financial oific€!

of Calectin duling the class period. Doc. No. [1111, p 10, 'l 17. Mauldin served

as a dircctor of Galectin during the class period. Dd. No. I1ul, p. 10, !l 18.

Mauldin also published inveshnent advicc to paying subscribers rhrough a

website cailed Mauldin [conoaics. D(. No. 11111, p. 10, ll 1s. Mall.tin

E.onomics employed various editore, inclu{ting Pakick Cor, who contributed

rcsearch on small{ap biotech companies rhrough a fee-based pu bti.arion ritted

"Tratufo.mational l<hnology Alert." Dd. No. [111], p.10,1 r8.

OnJanuary 31,2013,Cal€tin amounccd thatithad submiibedto thc I,DA

an Investigarional New Drug application to condu.t a shrdy of its new drug

candidatc, GR MD-02 D(. No. I ll, p_ t1 t 27. GR-MD 02 is a complex

polysaccharide polymer for the trearment of fatry liver disease, or NASH, with

advanced Iibbsis. D(. No. [111], pp.4-5, f 2. Ihereafter, on lebruafy 1,2013,

Gale.tinamoun.ed rhar it had entered inroan ag.ementwithCTl Clinical.t.ial

SeM.es,lnc. to con.lucta Phase I clinical tiial ofcR MD-02 to assess the.lrug,s

salety and p.eliminary effica.y in humac. Doc. No lllll, p. 12, rl 27. After


Cal€tin received IDA authorization to commence its Phasc l.linical trial, the

.ompany began etuolling the first patienrs in thc study in luly 2013. Dd.

No. [111], pp.12 '13, f 27.

Wl' le Ccl^ lin wa. prceeJints w,th lha.c I te.linS of cR MD 02. Jn

O.tob€r 25,2013, the company launched d "at-the,markef' (,,ATM,,) offering

ofup to $30million of company stock. Doc. No. I ], p.5,114; Doc. No. 11 l,p 13, f 29, Dft. No.Illll, p.15,1136 cahtin cnter€d into an agreement wth

MLV & Co. ("MLV") whereby Ml.V a.ted as Cale.tin's agent in rhe sale of the

companv's shares. Doc. No. [11]1, p s, ll 5;Do.. No. [111], p. 13, ! 29. catdindisclosed in a press release attached to thecompany's Fom 8 K liled with thc

United States Securities and Exchange Comission ("SEC") on January 10, 2014,

that in conn{tion with the O.tobe. 2t 2013, ATM offerin& d uring ttr period of

O.tob.r 28, 201 3, rhrough January 9, 2014, cale.rin sold a total of 2,391,204 shares

or its .ommon stek at an average price per share of 59.99, for torat gross

proceeds oI 523,883,137. Doc.No.lll1l,p.1a,133 on March 21, 2014, catectin

initiated a cond ATMofferinSoI up ro another S30 milion of company stock.

DG. No. Il11l, p. s, fl a; Dft. No. 11111, p. 14, !l 3a, Do.. No. {1u1, p. 15, !l 36.

Galectin again entered into e agr€ehent with MLV whefeby MLV actcd as


DN. No. [111],p.14,f 34 Gal€tin repre*nted rhat it would not take any achon

that would result in the "manipularion" of the p.i.e of its comon stdk that

Cale.lin was offering for sale. Dc. No. llrtl, p t !l 5. At the time cal4tin

announ.e.l the March 21, 2014, A]M offering, its shares were trading ar an

avoase p cc of $15.31 per share. Doc. No. 11 111, p. 15, ll 3s. cal€*in dc.losed

in its an ual report for the year ended D(ember 31, 2014, in a Fotu 10-K file.l

with the SEC on March 18,2015, that,,[a]s of Ddember 31,2014, theCompany

had issued 217,622sharesof itscommonsto.k through ltheMa.ch21,2014, ATM

orferingj resulting in gross preeeds of app.orimatety 91,196,000.,, Doc.

No. [111], p. 1s, !135.

Calectin's agent in the sale of the compdy's sharer. Dd.No [111],p.tf5,

perio.l, Galectin retained nulriple stock

promoters-Lretween twoand fou-to piomote thecompany,s stock. Doc No.

11111, pp 15-16,137 PlaintiffallegB rhat Catcrin wo.ked with the following

stock protuoters: (1) Acorn Manasement Pa.rners, LLc (,,Acorn,,), (2) TDM

Financial/Emerging clowrh corp. ("TDM',), (3) cox, and (4) The Dream

Te.m/Mission IR ("Dream Tem"). Dc. No_ [111], p. 16, i 3s. The stftkprohotels published variousarticlcsaboutcalectinand its developnentofGR_


MD42. Doc. No. [1111, p.17,1a0, Doc. No.1111], p.18, !l! 42,45-46, Doc. No.

11111, p. 19, r 49; Dft. No. [111], pp l9-20,151. Plaintif{ alleges that calfftin

did not d isclose its relatio8hip with Dream T€am, Cor, and l DM, and that it

lailed to fu lly and a..urately disclose its relationship with A.om. Dd. No [1111,

p. 16, f 38 Specifically, Plainiifl alleges that Gal(tin did not properly disclose

to shdeholders that it paid the promotere compensa tion, or thai the promote.s

otheMise had an cconomic interest in calectin. Dc. No. 11111, p. 1Z I al, Doc

No. []lll, p.18, !143, Doc. No. [1]11, p.19, !150; Doc. No lll1l, p.20, fll52-s3.

Iissentiauy, Ga lRtin issued nufre.ous press reI€ases during the Phase I trialof

CR-MD-{l2detailinSthe16ults, th. stock p.omorers issued arti.lesatornear the

same timeasCalectinissueditspress.elea*s, and the press releases and ariicles

were issuedduringthepeliodoftifre thatGalectinconduched its ATMofferings.

Dc No. 11111, pp. 21-25, 'lf 5-4-66. Betwen the time cal<tin announced its

submission of an Investigational New Drug Application to conduct lhe l,hase I

trjalofGR-N1D-02inJanuary 2013and the tim€ itissued a press release onJuly

25,2015, during which the ATM olferings o..ured, the price of calstin's

comon stGk inc.eased ftom approximately $2 per sha.e to as high as $19 per

share. Doc. No I111l,p 25,.167. Galdtin represented through vanous means


Doc. No. [11] l, p. 26, lll 68-70. on July 25, 2014, and July 28, 2014, .espectivet,

Adam reuerstein, an inv6hnent commentato. for Trsstect, and Bleaker Sheet

Research, posted articles di$ussing caletin's u* of sto.k promoters, some of

whom rcccivc.l .ompcnsation, to promote rhe .ompany' s stek. Doc. No. [111],

pp. 27-28,111 72-76. Cale.nn's sro.k price dropped lrom $15.91 p.f share at the

openinS of the ftarkets onluly 28,2014, toSZ10 persha.e ar rhe opening of rhe

markets onJuly 29,2014, a {trop oI more rhan 55 poc€nt. Doc. No. J|tl, p.29,

n77.

Plaintif f alieg.s rhatcate.ri! made fatseand misleading statementsduring

the class p€riod. Doc No. {ttil, pp.29-y, fn 78-91 For example in s

ageemenr s'ith MLV filed wirh the sEc on o.tober 25,2013, which was later

amende.l on March 21,2014, calectin hade the following .ep.esenrarion:

that itdid not enSage in any conduct to manipulate the company's stock price.

Neither th€ Cohpany, nor any Subsidiary, nor any 01then resp{tive diidtors, offices or controtln,gPcreons has taken, dnetly or indjrectly, any aGiondcsigned, or that has constituted or would reasonablybe exPectecl to cau* or resultin, undef the [xchan.eA.t o; othetrise, the stabilization or manipulation?i


the price of any serity of the Company to facilitateth€ sal€ or rsale of the lrlac€dentShares.

Doc.No.F1ll,p.29,il!178-79;Do.No.11111,p.33,11!r87-88.cal{tinfurther

stated, " fhe Company will nor, diretly or indir{tly/ (i) rake any action designed

to cause or .esult in, or that constitutG or would reasonably be €xpe.red io

constitute, the stabilization or tunipulation of the price of anysfturity oI the

Company to laciliLate the sale orresaleofCotumon Stock." Doq No. [111], p.29,

f 79 Plaintiff also identifies forms filed wirh th. SEC anct pless reteaes by

dislose that the company hired srock promoteB du.ing the A IM offerings. Dc.No. t1111, pp. 32 34, lll 81-91. In addition to rhe allegations with respet to

Galetin, I,lainriff alleg.s that the stock promoteF omitted matelial facts from

their arti.les, including their .e.eipt of codpssation from cal{rin. Dft.No.1111l,pp.3s-38, llT 92 99.

Cale.tin that he contends we.e materially fal* or misleading for lailing to

OnJune 24 2015, Galectin, Czir, Marin, Tfaber, Catticutt, and Mautdin

filed a Motion to Dismiss fo. Failure to State a Claim (Doc. No. [114) and toxFud iiled a Motion to Dismjss for lailure ro Srate a Claim (Da. No. [t t8]). The

parties have bricfcd the motions and thc Court heard oral argument with 16pe.t


tothehotioroon NovemtEr 3,2015 (De. No.11281) The motiotu are nos .ipe

for consideration by theCourt.

II. LEGAL STANDARD

A.omplaint may b€ dismis*d if the facts as pled do not state a claim for

rclicf that is plausible on its face. Ashcroft v. lolaL 556 U.S.662" 579 (2009)

(explaining "only a complaint that states a plausibleclaim for relief su wives a

nohon tu Jismrss'); Bell Atlanri Twomblv 550 U.5 544, 561-62, 57t)

which provided that in reviewinS the sufficiency ofa complaint, thecomplaint

should not be dismissed "unless itapp€aB beyond doubt that the piaintill can

prove no set of facts in support of his clair which would entitlehim to relief").

ln lqbaL theSupremcCourtreiterated thatalthough Rule 8 of the Federal Rules

of Civil llrcedure does not require detailed factu al allegations, jt does demand

"mo.c than an uMdorned, th€-defendanGunlawfuuy harhed me accusation '

Iobal.556 U.S. at 678.

(2007) (retiring the plior eod qo 155 U.5. 41.4sb (1954 standard

InTwombly. theSupremeCourtemphasized a complaint "requi.es hore

than labelsand.onclusions, and a fomolai. r(itation of the elements oI a causc

of action s'ill not do." 550 U.5. at 955. lactual allegahoE in a complaint nee.i


not be detailed but "must be enough to raise a right to relief above th.

spe.ulative level on the assumption thatall the allegatioro in the.omplaint a.e

true (even if doubdul in fact) " Id. at 555 (intemal cilations and

B{ause I'lainhff asse.is s<urities fraud claims against Defendants,

Plaintiff must also satisfy Fedelal Rule of Civit prftedure 9(b),s heightened

pleadinS requnements. Mizzaro v he 544 F.ld I210,1237 (11th

Cir. 2008) Federal Rule of Crvrl

hisrake, a party must state with

lraud ormistake." ted. R. civ. P.

thc EleventhCir.uit has held,

Proced!.e 9(b) states, "ln alleging fraud o.

particularity the cncumstances constituting

9(b). The United States Cou.i of Appeals for

"Rule 9(b) js satisfi.d if the comptaint sers forth'(1) prc.isely what staicmcnrs were made in whatdcuments or oral representations oi what omissionswere made and (2) the time and place of each suchstatement an.l the Frson responsibl€ fof making (or,in th.case ofomissioB, notmakind sane, and €) tnecontent ol such statements and the manner in whichthey misled the plainrifl/ and (a)whatthe defendantsobtained as a consequence ol the taud.,,,

Mizzato. 544 E.3d at t237. In addniorr thc I5LRA, pub. L. No. 104-62, 109

Stat.737(1995), ifrposcsahcightened pleadingsrandard forkienbe.. kLat1238.

Plaintiff hust "with resp{t to each act or omission alleged to violate Jrhc


relevant co.le se.tioni, state with

interen.€ that the defenddt actcd

5 78u a(b)(2).

particularity lacts giving rise to a

with the requiled state of mind." 15 u.s.c.

III, DISCUSSION

A, Count I: Violations ofSecrionl0

Se.tion 10(b)of the Exchange Actmakes it unlawlul for any pe6on,,[t]o

useoremptoy, in.onneftionwththepurchaseorsate of any ssurity registe.ed

on a national securities exchange o! any seurity not so regisrere.t? . . . any

manipulativ€ or d€eptive device orcontrivanc€ in.onbavcntion of such rules

and regulations as thc Commission may prescribe as oecessary

in the publi. interGt or for the prorerion of investors.,, 15

RulF l0b- ). D.omJlgatcd by rhc sEC. \rr'ies the rot,owin8.

u.s c. s 78j(b).

It shall be unlawful for any person, diretly orindire.tiy, by the use of any meanso. insrrumenralityor rnteretatecommerce/orof the mailsorof any fa.itityoI any na tional s<uiti6 ex.hangg

(a) To employ any device, scheme, or

(b) To hake dy untruc starement of amaterial factortoomir ro stare a marerialiact necssary in order to trake th€

Rule 10b-5lbl Prom


statemcnts madc, in the light of theci(umstan.es undcr which they w€r€made not misleadinS, of

(c) To engage in any act, prachce, or.ou6e of business which operates orwould operaie as a fraud or d{eit uponany Pereon,

in cometion with the p! rchase or sale of any security.

17C.1.R. S 240.10b-5. Regarding a cause of action under s{tion 10(b), thc United

StatcsSupreme Court has held,

To re.over damages for violations of sdtion 10(b) andRule 10b 5, a plaintiff must prove "'(1) a materialmisrepreentation o! omission by the defendant;(2) scienter, (3) a connection between thcmisrepll:{htation oromi$ion and the purchaseor salcof a surity, (4) reliance upon the misrepreentalion oromissionj (5)conomic loss; and (6) loss .ausahon."

llallibunonCo v Enca P. Iohn Fund- ln.. 134 S.Ct. 2398,2407 (2014). InCounll

of thc CCAC, Plaintiff asserts a claim that Galechn, Calli.utt, and l raber violated

sction t0(b)ofthe Ex.hange A.tand Rulcl0b 5(b) promulgated thereunderby

making "materially ialse and misl.ading statements and omissions of matefial

fact." D(. No. 1111), pp. 47 50,rif 125-34. Sp{incaly, in response to

Defendants motiotr to dismiss, Pla inriff a rgues thai Defendants lied to investors

by assuring that Gal€tin had not taken any action designed to cau* or result in

manipllanon ot the company's sto.k Price, and failed to disclos€ Gal€ctin's


liable for a violation of Rule 10b'5(b) Ianus Ca

Den\ dtive l,dders.l ll S Cr.229l.2l0l (2011) "For ouroose!otRrle 10b 5. Lhe

"fraudulent stkk promotion s.hcne." Dc. No [119], pp. 7 aj Dd. No. [119],

PP 12-23

To th€ exteni that Plaintiff bases his Ru le 10b-5(b) claim on the articles by

the strk promoters, theSupreheCourthas lor(losed the claim. The Supreme

Couft has held that a.lefendant must have "made" the unkue statement to b€

the conteni of th€ statem€nt and whether and how to comunicate it." tl,at 2303 While I'laintiff has set fofth allegations that Defendants worked in

maker of a statement is the pereon or entity with ultiftate authority over the

statehenl in luding its content and whethcr and how to comunicatc it.

Without control, a p.rson orentity can me.ely suSgest what io say,not'mak€'

a statement in its own .ight." LL a t 2302. ultimately, the Supreme couri adopred

the fonowing rule: '[T]he maker of a staternent is the entiry with authority over

conjunction with stock promoteB to promote Galecnn s stek, Particularly with

respdt to the hming of articles by ilr st(k promoters and company press

releases, Plaintiff has not included sufficient allegatiotu thatsupporta finding

that Galetin had ultimate authority or control over the stdk promoters'

statements. Even if Gal€ctin provided assistancc (afting the stock promotere'

a.ticles, that is not sufficient to support a claim under Rule 10b5(b). See i4at 2304-05. Even if Plaintiff suffici€ndy pled allegatioc that De{endanLs were


thc maker of the articles, Plaintifl does not cha llenge the veracity of the claims sct

forth in the articles. In response to Defendants' motions to dismiss, Plaintiff

staies, "Plaintiffdoes notchalicnge under S 10(b)a single substantive statement

in thc Stock Promoteri a!ticl6." Dc. No. 11191, p. 18 n.5. Plahtill also states,

"Plaintifi's claim are not premied on the actualstatements made in the Stock

Promoters' articles." Doc. No. 11191, p. 2a n.10. Rule 10b-5(b) prohibits the

fraking of an hhle or misleading statcment, yet Plaintiff indicates that he does

not chall€ng€ any stat€ments in the St(k Promotcls' articles.

Neither has Plaintiffsufficiently pled fa.tual allegatios that D€fendants

madeuntmestatementsor omitted material facts. S€.tion17(b) oI tlF Exchange

Act imposesa duty to d islose tha t a sto.k prodoter r<eived .ocidera tion for

pronoting a.ompmy's s{urities. 15 U.5.C. S zq(b). Sp<ificauy,

It shal be ur awful for any pe.son, by ihe use of anymea.s or instruments of transPortation orcomunication in intersta te commer.e or by the use ofthe mails, to publhh, give publicly to, orcncubte anynoti.e, .n ulaf, advertisement, newspaper, alticle,lett€r, investment service, or communi.ation which/though not purporting to offe. a security for sale,desdibes such *curity fora consideration received or1o be r<eived, dn(ily or indirectly, fiom an issuer,undcryriter, or dealer, without fully disclosing thedeipt, whether past or prospective, oi suchcocideEtion and the ahount thereof.

15USC.S77q(b) Ba*donthelanguageotthestatute,thedutytodikloser6ts

on the stdk promoters, not Defendants. Fo. th€ Court to imPose a duty to


d is.los on Defen.lanis would enooa.h on the d rafter's decision to cr€ate a duty

to disclose on dalys6, such as st(k promoteF/ rather rhan the issue. of a

regulated seurity. Iurthermore Plainnff has not otheMise set fodh factual

allegations that Defendants took aftiotr .lesigned ro cause or resutt i!manipulalion of the.ompany's stek pnce or a fraudulent stGk promohon

s.heme. While Plaintiffalleges rhatDefendants retained stock promorere, those

allegationsdonotcreateacauseof actionunderRulel0b-5(b).,,ttmysemodd

to the dinitiated, bu t nothinS in the sc<u.iries laws bars the issuer of a regu lated

sccurity from paying

A.koosh.3! F Supp.

analyst fo! a stock recommendation./'

7J.8r tD Mds\ 200c1 ln Cdrue! lhe dnlrtrt.ourr

Cvl&lolp-Ser-Litig,- 2015 WL 5031232 (C.D. Calif. Juty 13, 2015) and b rcti!g- 2015 wL 4h43474 (D. Orc Au8. 5,

2015) diftcr significandy from the presenrcase. Inr,rreCytRr rheauthosof

2d

noted, "JTlhe approa.h raken by the s(ulitics taws-in pra.tical rdognition of

the ract that most market research is pe drmed by analysts who are paid by

brokerage firms, invetrnenr bdk, and other marketers of s(urities_is to

req uire disclosufe of the fa.t that the analyst has been pa id.,, LL Th€ purpose

of stdk prodot€rs is topromoteacompanyand itssrock, thereby increasing the

vaiue or pricc of the stck. B€ause it is pernissible to use st@k prohoters,

Dcfendants did not impermissibly franiputare rhe company's srock pricc

Moreover, the cases.ited by Plaintiff to su pport his Rule 10b-5{b) ctaim_lale


the article sere named as dcfcndants to the achon, and there w€rc aueAations

that the.ompany "edited and approved the articles before publi.ation," and that

thedn!le.serepubli.hcdu.ingaha.e.. llrecvtR\.)0r5Wl 50r12J2"1 2 In

.hp fla..r.ff. ,pr forrh all^gdrron< rhat rhp rro.l promotpr u.pd

alia*s, and the company required that it appfove evefy article prio. to

publication. In !e Galena. 2015 \ryL 4643474 a(2-'6. Plaintiff merely alleges that

Galectinused strk promoters to in.reas the p.icc olitsstock and Defendants

did not dislose thisanangement to investors. The* allegatioG are itruffici€nt

to supportaclain under Rulc 10b-5(b).

Plaintiff has Iailed to state a claim for reliel under s(tion 10(b) of the

Eichdge A.t and Rule l0b-5(b) promulSated thereunder. FnsL Defendmts are

not the make.s of the arti.les, no. does Pla intjtt cha Ucngc the statements rt forth

in th€ articles. ft.ond, Dcfendants did nothave a dul' to di*Lose thatGaletin

retained st(k promobers. 'fhird, De{endants did not engage in impemissible

actioN to manipulate the price oi its shar6.

B.

Rule 10b-5(al and {.) Promulgated The.eunder

Rulel0b-5(a) and (.), whi.h lorm the basis ofCountllof the ccAC, djffer

flom Rule 10b-5(b). Rule 10b 5(a) concerns "any device, scheme, or artifice to

defraud," and Rule l0b-5(.).once.ns "any act, ptactice, or courec of business

whi.h operatG or would operate as a fraud or deceit upon any pereon." 17

Count It Violationr of


C.F.R S 240.10b-5. Recognizing the difference betwen these rules, the United

Statcs Court of Appeals for th€ NinthCir.un has noted, "Courts have generally

held lhat'lal Rule 10b-s(a)and/or (c)claim cannot be premised on thealleged

misrepresentations oromi$ions that ford the basis oI a Rule 10b-5(b) cla ih."'

Runner. Inc. 655 r.l,l lola, 1057

(9th Cir.20ll). After previoosly suggestjng ihat it was noi pe.missible for

"allegations underpinning a Rule 10b-5(b) omissions.laim ltolbe r@st as lal

Rule 10b 5(a) or (c) claim," the Ninth Circuith€ld tha t " lal detend:nt may only

be liable as part of a trauduleni schehe based qpon misrepresentations and

ohissions under Rules 10b-5(a) or (c) when the s.hede also cncodpasses

conduct beyond those misrepresenta tions or omissions." LL

With respet toCount IIof theCCAC, Plaintiff "r€peatsand realleSeseach

and cve.y allcAation" set fo(h in thepr<eding paragra phs of lhe CCAC. Dd.

No. Jllll, p 50, 11 135.r Plaintiff do.s not idenlify any factual auegations that

form the basisofCount Ilthatare*parate Irom the lactual allegations that form

the basis ol Count L Comoare Dc. No. l11ll, pp 47-50, ffl 125-34 ldlh Dd.

No.I1111, pp. 50-52, 'l fl 135-42. However in respon* to the hotions to dismiss,

: lhc cc^c is a quimcsscnrial shorgln plcadins. 'lhc llnir.d Sldes Courl ol'.^tp.als lbrft.lilcvcnth Ciouil dcllncs shotgun plcadinss rs \hosc thar inNryorurc c!c')anl.o.denl rllcgalion bt .cl-clcncc into .ach subscqucnt clainr tbr rclicl o. lmmatilcdcfcnsc ]yjs!s!-!-[i4Ulp!izeL!&or..]epe., 464 lr.3d 1271. I279(IIftCn.?006).-lslhot8ln plcldinss qrcat havocon rhc judicill syncm. &L

wPP Lurembours Gamma Thr


Pla intilI argues, "Plaintiff has aucged conduct that isseparate ard distinct lrom

Detendants material misstatements and omissions, 'including the hiring of

promoters, planninS. . . well-timed a.ticls with targeted.ontent to artjtj.ially

inflatu the vahe ot company sio.k and .aise revenue and covering up the

Cofrpany's involvement."' D(. No 11191, p. 28 the factualallegations that

Plaintiffcontendsareseparatefrom thosethat foih thebasisol the Rule l0b'5(b)

cla im are not prohibited, such as working with stkk promote6 and planning the

tnnnrg of a.ticles, and, fundamentally, aie nothing more than an omission

claim-i.e., covering up or failing to di$lose Galrtin's involvehent in the

promotion oI its stdk. Plaintilf has failed to statc a claim for relicf undc.

Rules l0b-5{a) and (c).

C. Count UI: ViolatioG of

The I'nalclaidset forth tn theCCAC F for vrolat'onsof qtion 20(d) ofthe

Lxchangc Act, whichstates the following:

l\.ry pe!rcn who. dirRrly or Indtrc<,1). (ontrols anyPcrson liable underany provision o( this chapter or ofdny rule or reguldl'on lhereunder shalldho be ldblejointly and severally with and io the same extent assuch controiled pe6on to anv pe6on to whom such.onholled pe6on is liable. . . , unless the controllingpcreonacled in good faith and did notdirRtly or


indirdtly indu.e the act or acts constituiing theviolation or cau* of:ction.

15 U.S.C S 78t(a). With respect to.laihs brought under *ction 20(a) of the

Ex.hangc A.t, the United Stats Co!rt of Appeals for rhe Eleventh Circuit has

held, "To state a claim undersertion 20(a)a conplaint must allege thatprimary

liabilib' undef se.tion lo(b)existsj thedefendanihad the'power ro controlthe

generalbusiness affai.s of Ithe corporarionl'r an<l the defendant had the powcr

to '.ontrolor influence the specific coryorate policy which rcsu lre.l inprifrary

liability."' Rosenberg v. could. 554l:.3d 962,967 (77lJ1Ci,r. 2fi)9). Here, the

Courthas found that Plaintiff failed to srate a claim fo. primary liability under

se.tion 10(b) of the tixchange A.t, the.efore rhere can be no secondary liabitity

hestates, "lf the Court perceives any portion of the [CCAC] to be isufficient,

Plaintiff resp(tfully requestsleave to am€nd to cure any noted defi.iencies

puGuant to Rule 15(a)(2)." Dd. No. [1191, p.31 Fed€.al Rule ol Civi] pr(cd u.e

l5(a)(l) provides thata pa.ty may amend its plead ing once as a matter of.oursc

within either twenty-on€ days after sening it, or twenty-one days after scrvi.e

oI a rcquired responsive pleadins or motion file.t under Rule 12(b), (e), or (0,

whichever is earlier Fed. R. Cjv. P.15(axl). After this twenry-one day period

D. Leave to Anend

ln the conclusion setion of I'laintiffs rAponse ro ihe Dotiotr to disd iss,


has passed, a pary may amend its pleadinA only with the opposing pariy's

written consentor *re courrs leave, which the court "should freely give . . . when

justi.e so rcquires." Fred. R. civ. P.l5(ax2).

The UnitedStates Court of ADoeals for the EleventhCirc!ii has held:

lhe Eteventh Circuit has also held, "'Wherc a request for lerve to filc dn

amendcd conplaint sinply i5 imbedded w hin an opposition metuo.andum, the

The thrustol Rule 15(a) is to allow parti€s to have thei.claitu heard on the merits, and a.cordinSly, distri.tcourls should liberaly grantieave to amend when "theunderlying facts or circunEtanc€s relied upon by aplaintiff may be a proper subjet of relief." Foman v.D?!!, 371 U.S. 178, 182, 83 S.Ct- 227,238,9 L.E1.2d222(1962). N€vertheless, a motionforleaveto amend mayappropriately be denied '(1) where rhere has beenundue dela, bad faith, dilatory morive, or repeatcd{ailure to curedeficiencies byamendhents p.eviouslyallowed, (2) where allow ing amendments wo! ld causeunclue prejudice to thc opposing parry; or (3) whereamendmcnt would bc futile." BNant v. Dupree, 252l.3d 1161,1163 (11thCir 2001).

InreEngleCa*s.767F.3d 1082,1108-09(11rhCir.2014).

It has been h.ld that 'llleave to amend a complaint is furile when the

complaint as am€nded would still be Foperly dismissed or be imediately

subj(t to sumnary judgment for the defendant." Cockrellv. Sparks.5t0 F.3d

1302 1310 (11th Cir. 2004; scc alea Ha ll v. Unite.l Ins. Co. of Am.. 367 F.3d 1255,

1263 (11th Cir. 2004) ("This court has found that .lenial of leavc ro amend is

justified L'y fuliliiy when the.ohplaintasamended is srill subjet todismissat.,,)


issuehds nor been rdised properly "' RajeDkrg, 554 I; lJ oo2, q67{200c) Inlhis

case, Ptaintiff has not properly raised the issue of amendment. Furiher, aen ifPlaintiffs request fof leave to am€nd is properly raised, the Cou( finds that leave

to amend the complaint is iutile. The oPerative complaint is an amended

complaint filed by Plaintiff upon transfer of this mattei to this Court. And

tlaintiif failed to slate a claim for reliet not due to a lack of specificiry, but

b{ause the alleged missiatemmts/omissions, and *heme do notformthebasis

ofa.laim against Defendants under lhc Exchangc Act.

ry. CONCLUSION

Cal<tin, Czirr, Martin, Traber Callidtt, and Mauldin's Morion lo D|smiss

(Dd. No. 1114) and 10X Fund's Motion !o Dismiss (D€. No. tll8l) are

GRANTED- This mtter is hereby DISMISSED WTTH PREfUDICE.

IT Is so oRDERED, this -3ZtI day or 2015.

UNITED SIATES DISTRICT JUDCE


Documents

on cat{tin...Calli.utft seped as rhe chief Financial oific€! of Calectin duling the class period. Doc. No. [1111, p 10, 'l 17. Mauldin served as a dircctor of Galectin during the