A key issue in securities fraud litigation is when, and under what circumstances, a company has a duty to tell investors about material corporate developments.
In Weston Family Partnership LLP v. Twitter, 2022 WL 853252 (9th Cir. March 23, 2022), the plaintiffs alleged that Twitter had misled investors about problems with its Mobile App Promotion (MAP) product. In August 2019, Twitter announced that software bugs in the MAP product had caused the sharing of the cell phone location data of its users and that it had “fixed these issues.” Several months later, the company disclosed that software bugs continued to exist and reported a $25 million revenue shortfall.
The district court dismissed the claims. On appeal, the Ninth Circuit found that “fixed these issues” referred to no longer sharing the cell phone location data, not the software bugs. Moreover, Twitter had no duty to update investors about the progress of its MAP product and the plaintiffs had not plausibly alleged that the software bugs had materialized and impacted revenue prior to August 2019.
Holding: Dismissal affirmed.
Quote of note: “While society may have become accustomed to being instantly in the loop about the latest news (thanks in part to Twitter), our securities laws do not impose a similar requirement. . . . Put another way, companies do not have an obligation to offer an instantaneous update of any internal developments, especially when it involves the oft-tortuous path of product development. Indeed, to do so would inject instability into the securities markets, as stocks may wildly gyrate based on even fleeting developments.”