In re Sequans Commc'ns S.A. Sec. Litig.

Citation: 289 F. Supp. 3d 416Docket: 17–CV–4665–FB–SJB

Court: District Court, E.D. New York; February 5, 2018; Federal District Court

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A putative consolidated class action has been initiated on behalf of investors who bought Sequans Communications S.A. securities between April 29, 2016, and July 31, 2017. Plaintiffs Andrew Renner and Kevin Shillito assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Sequans and its executives, Georges Karam (CEO) and Deborah Choate (CFO). Their two separate complaints were consolidated on September 29, 2017. 

Sequans, which develops 4G semiconductor solutions and is traded as "SQNS," is accused of filing false financial statements in its Forms 20-F for the fiscal years ending December 31, 2015, and December 31, 2016. These filings, which included certifications from Karam and Choate as required by the Sarbanes-Oxley Act, allegedly misrepresented revenue recognition and internal controls, failing to disclose improper revenue recognition practices. 

The Court has granted the motion by Kulwant Johal and Matthew McGee for Lead Plaintiff status and appointed Pomerantz LLP and The Rosen Law Firm as Co-Lead Class Counsel. Conversely, motions from Jerry L. Searing and The Boca Raton Police and Firefighters' Retirement System for similar roles were denied. Renner and Shillito's complaints contain largely identical allegations regarding Sequans's financial misrepresentations.

The Renner Complaint asserts two causes of action: a violation of Section 10(b) of the Exchange Act and Rule 10b-5, and a violation of Section 20(a) of the Exchange Act, covering the class period from April 29, 2016, to July 31, 2017. The Shillito Complaint alleges the same violations and class period. Three motions were filed on October 10, 2017, to appoint lead plaintiffs and designate lead counsel by Johal and McGee, Searing, and the Retirement System. Searing subsequently filed a notice of non-opposition to Johal and McGee's appointment. The Private Securities Litigation Reform Act (PSLRA) mandates that a plaintiff publish a notice advising potential class members of the action's pendency, claims, and class period, which was fulfilled by Renner's counsel on August 9, 2017. The notice was published in Business Wire, deemed a suitable medium, and the 60-day period for class members to apply for lead plaintiff status ended on October 10, 2017, with all motions being timely. The PSLRA requires the Court to appoint the "most adequate plaintiff" based on the largest financial interest in the relief sought and compliance with Rule 23. Although none of the Movants filed the initial complaints, they all submitted timely motions for lead plaintiff status, prompting the Court to evaluate the remaining criteria for the presumption of adequacy.

In determining lead plaintiff status based on financial interest, the Court evaluates several factors: the total number of shares purchased, net shares purchased, net funds expended, and approximate losses suffered, known collectively as the "Olsten Factors." The most significant factor is the approximate losses suffered. Johal and McGee have the largest financial interest, having incurred approximately $144,271 in losses from purchasing 193,695 shares of Sequans, with net funds expended totaling $712,608 and 190,945 shares retained. In contrast, Searing reported losses of $1,209 from 1,000 shares purchased, and the Retirement System suffered losses of $45,948 from 38,900 shares. Johal’s individual losses exceed those of the Retirement System, which claims their losses are comparable to Johal's but less than McGee's. The Retirement System argues that institutional investors should be favored under the PSLRA. However, even when examining Johal and McGee’s losses separately, Johal’s losses are significantly higher than those of the Retirement System. The Court finds this discrepancy substantial, dismissing the Retirement System's claims based on precedents where differences in losses were less pronounced. Ultimately, the Court concludes that Johal and McGee have the largest financial interest.

Three additional Olsten factors favor Johal and McGee, with Johal's financial investment of $602,956 in Sequans shares indicating a significantly larger stake than that of the Retirement System, which holds only one-fourth as many shares. The Court finds that the Retirement System's losses are not comparable to those of Johal or the combined losses of Johal and McGee, and therefore rejects the argument that institutional investors should be favored as lead plaintiffs under the PSLRA when their financial interests are not similar. The Court concludes that Johal and McGee possess the largest financial interest in the relief sought. 

Next, to determine eligibility for the presumption of lead plaintiff status, the Court assesses whether Johal and McGee meet Rule 23's requirements of typicality and adequacy. At this preliminary stage, only a basic showing of these criteria is needed. Typicality is established when claims arise from the same events and involve similar legal arguments. The Court notes that all claims arise from the same Form 20-F filings and misleading statements, leading to the conclusion that Johal and McGee have made the necessary preliminary showing of typicality to qualify as lead plaintiffs.

The adequacy requirement for class representatives is met if: (1) class counsel is qualified and experienced, (2) class members' interests are not conflicting, and (3) the class has a vested interest in the case outcome for vigorous advocacy. In this instance, Johal and McGee are represented by qualified firms, Pomerantz and Rosen, which have substantial experience in class actions. Their interests align with those of other class members, who share claims based on similar alleged violations tied to misleading statements related to Gentiva shares. Johal and McGee's losses exceed $140,000, indicating they have a strong financial interest in the litigation's outcome.

The Retirement System argues that Johal and McGee are inadequate Lead Plaintiffs, alleging they were assembled solely to aggregate losses for lead plaintiff status. The PSLRA allows individuals or groups to be appointed as Lead Plaintiffs, and most courts permit unrelated investors to combine, assessing such arrangements case by case. Key considerations include group size, evidence of bad faith in formation, and the relationship between members. The Retirement System does not contest that a two-person group is appropriate but claims Johal and McGee lack a pre-existing relationship. They further note discrepancies in the certifications concerning law firms. However, this objection is deemed unfounded.

Co-lead plaintiffs do not need a pre-existing relationship to be appointed, as established in Howard Gunty Profit Sharing Plan v. CareMatrix Corp. Courts regularly appoint unrelated class members as co-lead plaintiffs if they meet adequacy requirements. Johal and McGee have demonstrated their capability to collaborate through a Joint Declaration affirming their status as "like-minded investors," their participation in joint strategy discussions, and their choice of counsel. The deficiencies noted by the Retirement System in previous declarations are addressed by this Joint Declaration, which assures their cooperation.

Contrasting cases cited by the Retirement System, such as Buettgen v. Harless and In re Petrobras Securities Litigation, involved issues of lack of meaningful communication among group members or significant factual distinctions that do not apply here. Unlike those cases, Johal alone possesses the largest financial interest in the litigation, ensuring that no other plaintiffs are unjustly deprived of the PSLRA presumption due to their aggregation. The Court finds no problematic interests that would undermine their joint representation. Therefore, Johal and McGee meet the Rule 23 requirements for typicality and adequacy, entitling them to a presumption of being the most adequate plaintiffs based on their substantial financial loss.

The presumption that Johal and McGee will adequately represent the interests of the class has not been rebutted. The Retirement System's claims regarding the relationship between Johal and McGee lack merit and do not demonstrate any unique defenses that would impair their representation. The Court references the case Abouzied v. Applied Optoelectronics, which involved a rejection of a proposed group of 12 movants due to their lack of a pre-existing relationship and the inadequacy of their joint declaration. However, the Court emphasizes that the key issue is whether the proposed co-lead plaintiffs can adequately represent the class, especially since Johal has a larger financial loss than the Retirement System. The Court finds that adding an individual investor as a co-lead plaintiff does not make the group inadequate, as there is no PSLRA requirement for a pre-litigation relationship. The Court concludes that the presumption remains intact, appointing Johal and McGee as Lead Plaintiffs. Furthermore, under the PSLRA, Johal and McGee have selected Pomerantz and Rosen as their counsel, both of whom are experienced in securities class action litigation and have previously served as Lead Counsel in this Court, leading to their appointment as Co-Lead Class Counsel.

Kulwant Johal and Matthew McGee have been appointed as Lead Plaintiffs, while Pomerantz LLP and the Rosen Law Firm P.A. serve as Co-Lead Class Counsel in the case Shillito v. Sequans Communications S.A. et al., with other motions for Lead Plaintiff denied. The Court references the calculation of net funds expended during the class period, noting a difference of $712,608 based on McGee's sale of 2,750 shares, which yielded $8,966. Johal's sales occurred outside the class period. Johal and McGee have the largest financial interest in the case, as confirmed by Searing. The Court dismisses concerns regarding the timing of the Joint Declaration submission, stating that the PSLRA does not impose such a timing requirement. Furthermore, the Court differentiates this case from others cited by the Retirement System, which lacked sufficient evidence of group decision-making or conflict resolution. The Joint Declaration submitted by Johal and McGee demonstrates their ability to manage the litigation effectively, mitigating any potential risks to class members.