Under the PSLRA, the presumptive lead plaintiff in a securities class action is the applicant with the “largest financial interest in the relief sought by the class.” The largest financial interest is measured by assessing the approximate losses suffered and, once the court makes that determination, the contest is usually over. But not always. The court also has to find that the applicant meets the typicality and adequacy requirements of Federal Rule of Civil Procedure 23, including whether the proposed lead plaintiff and its counsel will vigorously fulfill their duties to the class.
In Wasa Medical Holdings v. Sorrento Therapeutics, Inc., 2021 WL 533518 (S.D. Cal. Feb. 12, 2021), the court determined that the top three applicants for lead plaintiff had the following claimed losses: Jing Li (represented by Pomerantz) $454,341, the SRNE Investor Group (represented by Kirby McInerney) $380,908, and Andrew Zenoff (represented by Robbins Geller) $195,500. While Jing Li was the presumptive lead plaintiff, with the SRNE Investor Group a close second, the court had some doubts as to the adequacy of both of these applicants.
According to her declaration, Jing Li is a 47-year old housewife from Singapore who had been investing in the securities markets for three years. The court expressed concern “about whether Li possesses the requisite experience to supervise this high-stakes litigation.” In addition, Li’s submissions to the court contained some ambiguities and errors, including stating that she could only attest to her transactions in Sorrento common stock to “the best of her current knowledge” and initially failing to note that she also was represented by the The Schall Law Firm.
So what about the SRNE Investor Group? Both Li and Zenoff argued that the group was “an improper amalgamation of unrelated investors without any pre-existing relationship.” The court agreed, finding that the Group’s declaration made it clear that the individual investors in the group did not know each other before being brought together by Kirby McInerney. The court therefore found that both Li and the SRNE Investor Group failed to meet the adequacy requirement.
In contrast, Zenoff had a larger financial interest than any individual member of the SRNE Investor Group and is “the founder of three companies, and the inventor of a maternity nursing product, which has sold millions of units for the span of 24 years.” He also has 20 years of investing experience. The court named Zenoff as the lead plaintiff, making him a rare “third place winner” in these contests.
Holding: Consolidating cases and appointing Andrew Zenoff and Robbins Geller as lead plaintiff and lead counsel.