VERNON S. BRODERICK, United States District Judge:
In this putative class action, lead plaintiffs Gary Martin and Sandra Lee Reyes Troyer, and plaintiff Michael Yeo (collectively, "Plaintiffs") claim that Defendants Pretium Resources, Inc. ("Pretium") and three individual Pretium officers — Robert Quartermain, Kenneth McNaughton, and Peter de Visser — violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a), and the United States Securities and Exchange Commission's corresponding rule, 17 C.F.R. § 240.10b-5 ("Rule 10b-5"). Plaintiffs allege that Pretium and its officers made
Pretium is a public company whose shares trade on the New York Stock Exchange ("NYSE"). (SAC ¶ 35.)
Lead plaintiff is suing on behalf of a putative class of persons who purchased common stock of Pretium between June 11, 2013 and October 22, 2013 (the "Class Period"), and retained such shares until after the Class Period ended. (Id. ¶¶ 1, 33.) Plaintiffs allege that Pretium's stock price was artificially inflated during that period as a result of material, uncorrected misstatements, and that they were damaged as a result.
The three officers whom Plaintiffs have sued are: (1) Robert Quartermain, Pretium's President and CEO, (id. ¶ 36); (2) Kenneth McNaughton, Pretium's Vice President and Chief Exploration Officer, (id. ¶ 40); and (3) Peter de Visser, Pretium's CFO, (id. ¶ 39) (collectively, the "Individual Defendants").
The Brucejack Project is an advanced stage mining and exploration project located in northwestern British Columbia. (Id. ¶ 2.) On October 28, 2010, Pretium acquired the Brucejack Project, among other assets, from Silver Standard Resources Inc. (Id. ¶ 50.) The Brucejack Project is Pretium's main mineral project. (Id. ¶ 2.) In 2012, Pretium began hiring independent expert consultants, known as "Qualified Persons" or "QPs," to develop estimates of the Brucejack Project's potential gold resources. (See id. ¶ 5.)
Pretium hired Snowden Mining Industry Consultants ("Snowden") to prepare mineral resource estimates for the Valley of the Kings zone (the "VOK") of the Brucejack Project in November 2012, which forecast that the VOK contained gold resources
Pretium hired Tetra Tech to oversee and complete a feasibility study of the Brucejack Project. (See SAC ¶ 110; Michael Decl. Ex. 8 at 1-1.) Pretium also hired AMC Mining Consultants (Canada) Ltd. ("AMC") and Snowden to provide the "mineral reserve estimates" for the feasibility study. (Michael Decl. Ex. 8 at 1-1; see SAC ¶ 5.)
On June 11, 2013, Pretium issued a press release announcing the feasibility study, specifically that: (1) the VOK contained probable mineral reserves of 6.6 million ounces of gold; (2) the Brucejack Project mine would have a life of 22 years and produce 7.1 million ounces of gold; (3) the Brucejack mine would have an average annual production of 425,700 ounces of gold over the first ten years and 321,500 ounces of gold over the life of the mine; (4) the mine would operate with a processing rate of 2,700 tons per day and mine a total of 9.6 million tons of ore for the first ten years at an average mill feed grade of 14.2 grams gold per ton; (5) the mine's project capital costs, including contingencies, would be $663.5 million United States dollars ("USD"); and (6) the project's average operating costs would be $156.46 CAD per ton milled over the life of the mine. (SAC ¶¶ 110-11.) On June 28, 2013, Pretium filed a Form 6-K containing the results of its June 21, 2013 feasibility study (the "June 2013 Feasibility Study"). (SAC ¶ 113; see generally Michael Decl. Ex. 8.)
Pretium hired Strathcona in late 2012 to oversee and report on its 10,000 ton bulk sample program, which included: (1) excavation of a 10,000 ton bulk sample; and (2) a 15,000-meter underground drill program (the "Bulk Sample Program"). (SAC ¶¶ 5, 59-60; Michael Decl. Ex. 17 at 1.) On May 28, 2013, Pretium issued a press release concerning its Bulk Sample Program, and indicated that the first underground hole drilled as part of the VOK Bulk Sample Program intersected visible gold and confirmed the projection of high-grade gold mineralized domains. (SAC ¶ 69; Michael Decl. Ex. 5 at 1.) Pretium also announced that it was scheduled to begin excavation of the bulk sample in mid-June of 2013. (See Michael Decl. Ex. 5 at 2.) Pretium would utilize a sample tower and mill to process the excavation samples. (Id.) The 10,000 ton bulk sample would first be excavated in 100-ton rounds. (Id.) Each round would be crushed and run through the sample tower. (Id.) The sample tower would then extract two 30-kilogram representative samples from each 100-ton round that it processed. (Id.) The remainder of the bulk sample would be shipped to a mill for processing. (Id.)
Pretium disclosed that the assay results of the sample tower would be reported by Strathcona in its report on the Program, which was "expected later in the year after compilation of all data." (Id.) Pretium also disclosed that "[a]ssay results from underground
Less than two weeks later, on July 23, 2013, Pretium issued a press release announcing that it had discovered the Cleopatra Vein. (SAC ¶ 117.) Pretium disclosed that the Cleopatra Vein was discovered while excavating "in an area of projected extreme grade mineralization." (July 23rd Press Release 1.)
On August 1, 2013, Pretium issued a press release announcing highlights and significant events during its second quarter, including: (1) the June 2013 Feasibility Study results; (2) the July 2013 discovery of the Cleopatra Vein; and (3) working capital of $37.9 million. (Aug. 1st Press Release.)
Two weeks later, on August 15, 2013, Pretium reported its underground drill results from the VOK and stated that assays from the program "continue to confirm the projection of high-grade gold mineralized domains, and visible gold continues to be encountered." (SAC ¶ 128 (emphasis omitted).) In accordance with Pretium's July 24th disclosure, the Company disclosed that it was moving the Bulk Sample Program's excavation location from 416585E-426615E to 426555E-426585E. (Id. ¶ 130.) It also disclosed that additional underground drilling and excavating was underway to test the extent of the Cleopatra Vein. (Id. ¶ 132.)
On September 9, 2013 and September 23, 2013, Pretium disclosed its drilling results and announced that these results continued to confirm the projection of high-grade gold mineralized domains. (Id. ¶¶ 134, 138, 140.) It also disclosed that the Company intended to continue excavating in the Cleopatra Vein. (See Michael Decl. Exs. 26, 27.)
Pretium then reported on October 3, 2013, that all excavated material from the
On October 9, 2013, Pretium issued a press release disclosing that Strathcona resigned prior to the completion of the Bulk Sample Program and the issuance of its report. (Michael Decl. Ex. 12 at 1.) This press release disclosed for the first time that Pretium expected "that approximately 4,000 ounces of gold will be produced in total from the material excavated for the Program, as defined by the Valley of the [2012 Resource Report] for that area of the Valley of the Kings." (Id.; SAC ¶ 147.) Following this announcement, Pretium's stock price dropped $2.07, or approximately 30 percent, to $4.70 per share when the market closed on October 9, 2013. (SAC ¶ 148.)
Two weeks later, Pretium issued a press release on October 22, 2013 informing the public that Strathcona advised the Company that:
(Id. ¶ 149; Michael Decl. Ex. 13 at 3.) Strathcona further advised the Company that "[t]he infrequent high-grade intercepts reported in the press releases have been shown in the underground exposures of the bulk sample program to usually be of very narrow width (0.5 meters) and associated with narrow geological structures that occasionally have mineable continuity as in the case of the Cleopatra Vein." (SAC ¶ 150; Michael Decl. Ex. 13 at 3.) Following this announcement, Pretium's stock price dropped another $1.27, or approximately 27 percent, falling to $3.36 per share when the market closed on October 22, 2013. (SAC ¶ 151.)
On October 25, 2013, the initial complaint in this case was filed by then-putative lead plaintiff Tim Kosowski. (Doc. 1.) On January 22, 2014, the Honorable Paul G. Gardephe, to whom this case was initially assigned, appointed Pretium Investor Group as lead plaintiff following briefing as to the most suitable lead plaintiff. (Doc. 24.) This case was reassigned to me on February 10, 2014. (See Dkt. Entry Feb. 10, 2014.)
Plaintiffs filed their consolidated amended complaint on March 24, 2014. (Doc. 39.) Defendants filed a pre-motion letter concerning its intention to file a motion to dismiss the consolidated amended complaint on April 9. (Doc. 42.) Plaintiffs filed their letter in response to Defendants' premotion letter on April 14, (Doc. 44), and I held a pre-motion conference to discuss Defendants' proposed motion on April 23, (Dkt. Entry Apr. 23, 2014). Defendants filed their motion to dismiss the consolidated amended complaint on May 19, 2014. (Doc. 48.) Plaintiffs filed their Second Amended Complaint on July 23, 2014.
On July 30, Defendants wrote on behalf of all parties to request a briefing schedule for Defendants' motion to dismiss the Second Amended Complaint, (Doc. 55), and the following day an endorsement was filed granting the request and setting a briefing
During the pendency of this motion, the Supreme Court issued Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, ___ U.S. ___, 135 S.Ct. 1318, 191 L.Ed.2d 253 (2015). The parties have provided me with letters containing their arguments related to how Omnicare impacts this case as well as additional supplemental authority, all of which I have considered in rendering my decision. (Docs. 71-73, 75-76, 78-82.)
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim will have "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. This standard demands "more than a sheer possibility that a defendant has acted unlawfully." Id. "Plausibility ... depends on a host of considerations: the full factual picture presented by the complaint, the particular cause of action and its elements, and the existence of alternative explanations so obvious that they render plaintiff's inferences unreasonable." L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011).
In considering a motion to dismiss, a court must accept as true all well-pleaded facts alleged in the complaint and must draw all reasonable inferences in the plaintiff's favor. Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007). A complaint need not make "detailed factual allegations," but it must contain more than mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks omitted). Although all allegations contained in the complaint are assumed to be true, this tenet is "inapplicable to legal conclusions." Id.
"Securities fraud claims are subject to heightened pleading requirements that the plaintiff must meet to survive a motion to dismiss." ATSI, 493 F.3d at 99; see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). Federal Rule of Civil Procedure 9(b) requires a securities fraud claim to "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). This standard requires that the complaint "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." ATSI, 493 F.3d at 99 (citation omitted). "Allegations that are conclusory or unsupported by factual assertions are insufficient." Id.
Rule 10b-5, promulgated under Section 10(b) of the Exchange Act, provides in pertinent part that it is unlawful to "make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading." 17 C.F.R. § 240.10b-5(b). To state a claim for securities fraud under Section 10(b) and Rule 10b-5, a plaintiff must adequately plead: "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008).
Materiality is a fact specific inquiry as to whether "there is a substantial likelihood that a reasonable shareholder would consider [the stated or omitted fact] important in deciding how to act." Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479, 485 (2d Cir. 2011) (quoting Basic v. Levinson, 485 U.S. 224, 231, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)). In other words, courts determine whether a reasonable investor would have considered the statement or omission "significant in making investment decisions." Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000). When considering an omission, the question becomes whether there is "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available." Hutchison, 647 F.3d at 485 (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)). Materiality is, however, a mixed question of law and fact, and a complaint may not be dismissed on the basis that the alleged misstatements or omissions are not material "unless they are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance." ECA, 553 F.3d at 197 (quotations omitted).
A Section 10 plaintiff must not only assert that a representation is material but also that it is false and "demonstrate with specificity why and how that is so."
Section 10 "do[es] not create an affirmative duty to disclose any and all material information." Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011). Rather, an "omission is actionable under the securities laws only when the [defendant] is subject to a duty to disclose the omitted facts." In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 267 (2d Cir. 1993). "Such a duty may arise expressly, pursuant to a statute or regulation, or implicitly as a result of the ongoing duty to avoid rendering existing statements misleading by failing to disclose material facts." City of Westland Police & Fire Ret. Sys. v. Met-Life, Inc., 129 F.Supp.3d 48, 68 (S.D.N.Y. 2015) (internal quotation marks omitted). Indeed, "once a party chooses to speak,... it has a `duty to be both accurate and complete.'" Plumbers' Union Local No. 12 Pension Fund v. Swiss Reins. Co., 753 F.Supp.2d 166, 180 (S.D.N.Y. 2010) (quoting Caiola v. Citibank, N.A., N.Y., 295 F.3d 312, 331 (2d Cir. 2002)).
In Omnicare, the Supreme Court held that a plaintiff may demonstrate that a statement of opinion or belief is false by alleging that: (1) the opinion or belief is itself a factual misstatement; or (2) the opinion or belief is misleading due to the omission of a material fact. 135 S.Ct. at 1326-27. A statement of opinion is itself a statement that the speaker holds the relevant belief. Id. at 1326. Therefore, an opinion or belief is actionable if "the `defendant's opinions were both false and not honestly believed when they were made.'" Kleinman, 706 F.3d at 153 (quoting Fait v. Regions Fin. Corp., 655 F.3d 105, 113 (2d Cir. 2011)). Even if a statement of opinion is literally accurate, i.e. it is honestly held, it may still be actionable if the opinion omits to state facts necessary to make the opinion not misleading. Omnicare, 135 S.Ct. at 1327-28. To establish that an opinion statement was misleading on the basis of an omitted fact, a plaintiff must: (1) identify the omitted fact; (2) show that "the omitted fact would have been material to a reasonable investor"; (3) establish that the omission rendered the opinion misleading to a reasonable investor; and (4) take into account the "statement's context," including relevant "hedges, disclaimers, or qualifications." Id. at 1333.
The Second Circuit recently offered an interpretation of Omnicare in Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016). The Tongue court found that Omnicare altered the standard announced by the Second
However, the Tongue Court emphasized the Supreme Court's "caution[] against an overly expansive reading of [the Omnicare] standard." Id. Specifically, it pointed to the Supreme Court's emphasis on the idea that "[r]easonable investors understand that opinions sometimes rest on a weighing of competing facts," and that "[a] reasonable investor does not expect that every fact known to an issuer supports its opinion statement." Id. (quoting Omnicare, 135 S.Ct. at 1329). These cautions mean that "a statement of opinion `is not necessarily misleading when an issuer knows, but fails to disclose, some fact cutting the other way.'" Id. (quoting Omnicare, 135 S.Ct. at 1329).
Pursuant to the PSLRA, a well-pleaded securities fraud claim must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2) (emphasis added). "The requisite state of mind in a section 10(b) and Rule 10b-5 action is an intent `to deceive, manipulate, or defraud.'" ECA, 553 F.3d at 198 (quoting Tellabs, 551 U.S. at 313, 127 S.Ct. 2499). In the Second Circuit, a strong inference of scienter "can be established by alleging facts to show either (1) that defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness." Id. Conscious misbehavior "encompasses deliberate illegal behavior," Novak v. Kasaks, 216 F.3d 300, 308 (2d Cir. 2000), whereas recklessness includes "conscious recklessness" or "a state of mind approximating actual intent, and not merely a heightened form of negligence," S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 109 (2d Cir. 2009) (quoting Novak, 216 F.3d at 312). A plaintiff adequately pleads recklessness where it alleges that the defendant: (1) knew facts or had access to information contradicting its public statements; or (2) failed to review or check information that it had a duty to monitor. See Novak, 216 F.3d at 308. "[W]here plaintiffs contend defendants had access to contrary facts, they must specifically identify the reports or statements containing this information." Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 196 (2d Cir. 2008) (quoting Novak, 216 F.3d at 309).
If motive to commit fraud has not been shown, "the strength of the circumstantial allegations must be correspondingly greater." Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001) (quoting Beck v. Mfrs. Hanover Trust Co., 820 F.2d 46, 50 (2d Cir. 1987)). In addition, a strong inference of scienter "must be more than merely plausible or reasonable — it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent." Tellabs, 551 U.S. at 314, 127 S.Ct. 2499.
Prior to the passage of the PLSRA, a plaintiff could allege scienter as to individual defendants and the company if the misleading statements and/or omissions related to a core operation of the company. See Cosmas v. Hassett, 886 F.2d 8,
With these legal principles in mind, I now turn to the allegations of the SAC to analyze whether or not Plaintiffs adequately allege a securities law violation.
The SAC alleges Pretium issued the following misleading facts: (1) statements on July 23, 2013 and August 1, 2013 that planning was underway with Strathcona to increase the Bulk Sample Program, (SAC ¶¶ 120-25); and (2) selective disclosures about the Cleopatra Vein drilling, (id. ¶¶ 117-19, 126-27, 132-33).
Defendants contend that there is nothing misleading about Defendants' July 23 statement that "planning" was underway with Strathcona "to increase the portion of the bulk sample tonnage testing the higher grade blocks in the Indicated Mineral Resource estimate to the east of the 426600E cross-cut and decrease the portion of the bulk sample tonnage to the west of the 426600E cross-cut" — in other words, from areas near the Cleopatra Vein. (Reply Mem. 5.) I disagree. Strathcona's disagreement regarding continued drilling in the Cleopatra Vein would certainly be material information to a reasonable investor. The 2012 Resource Report and June 2013 Feasibility Study recommended that Pretium conduct the Bulk Sample Program to test the accuracy of their projections. (See 2012 Resource Report 1.5.2; June 2013 Feasibility Study 26-1.) Strathcona was the independent QP overseeing the Bulk Sample Program, (see June 11, 2013 Press Release 2; September 23, 2013 Press Release 2), and therefore in a position to remark on the meaning of the results of the Bulk Sample Program. Given this context, a reasonable investor could infer that Pretium's statement that it was "planning ... with Strathcona ..., the independent Qualified Person for the Program" to increase the sampling and testing
With regard to Defendants' knowledge of the falsity of this statement, although a closer call, I find that the SAC adequately alleges that Defendants knew or should have known that this statement was false. The SAC asserts that Strathcona began alerting Pretium that the early assay results did not confirm the 2012 Resource Report during the week of June 23, 2013, (id. ¶ 78), and ultimately withdrew on October 8, 2013 after again advising Pretium that the Bulk Sample Results were not representative of the Cleopatra Vein and the VOK as a whole, and that Pretium's recent press releases were misleading, (Michael Decl. Ex. 13 at 3.) These allegations suggest that Strathcona raised its disagreement concerning a proposed change to the Bulk Sample Program at some point (and on more than one occasion) between June 2013 and October 2013.
"[A] complaint need only apprise a defendant of the general time period of any alleged misstatements to meet the requirements of Rule 9(b)." Rana v. Islam, 305 F.R.D. 53, 58 (S.D.N.Y. 2015) (internal quotation marks omitted); accord In re JP Morgan Chase Sec. Litig., 363, F.Supp.2d 595, 624 (S.D.N.Y. 2005) ("Plaintiffs need not allege `the exact date and time' when defendants became aware of information contrary to their statements, but plaintiffs must `supply some factual basis for the allegation that the defendants knew or should have known that the statements were false at some point during the time period alleged.'" (quoting Rothman v. Gregor, 220 F.3d 81, 91 (2d Cir. 2000))); In re Revlon, Inc. Secs. Litig., No. 99 Civ. 10192(SHS), 2001 WL 293820, at *8 (S.D.N.Y. Mar. 27, 2001) ("[A] plaintiff need not plead dates, times, and places with absolute precision, so long as the complaint gives fair and reasonable notice to defendants of the claim and the grounds upon which it is based."). And courts have found allegations of misrepresentations during a two month and a three and one half month period sufficiently specific. Rana, 305 F.R.D. at 58. Likewise, I find that Plaintiff's three and one half month period is sufficiently specific to enable Defendants to submit an answer and prepare for trial in accordance with the requirements of Rule 9(b) and the PSLRA. Consequently, I find that Plaintiffs adequately alleged a misleading statement of fact.
The SAC alleges that Defendants' disclosures of high grade drilling results in the Cleopatra Vein were misleading because Defendants failed to disclose that: (1) the Cleopatra Vein was a narrow geological structure that was not representative of the VOK overall; and (2) drilling had expanded into the narrow Cleopatra Vein to conceal the fact that the Bulk Sample was not yielding favorable results. (SAC ¶¶ 117-19.) I do not find this contention persuasive because Defendants substantially disclosed this information to investors.
"An investor may not justifiably rely on a misrepresentation if, through minimal diligence, the investor should have discovered the truth." Starr ex rel. Estate of Sampson v. Georgeson S'holder, Inc., 412 F.3d 103, 109 (2d Cir. 2005) (quoting Brown v. E.F. Hutton Grp.,
The essence of the SAC's allegations related to misleading statements of opinion are Pretium's prediction that the Brucejack Project would be a high-grade, high-production mine estimated to produce 425,700 ounces of gold annually for the first ten years and an average of 321,500 ounces of gold produced annually over the mine's 22 year life. (SAC ¶¶ 7, 49, 110, 122.) Plaintiffs assert that this forecast was misleading because Defendants failed to disclose information available to Pretium including: (1) Strathcona's concern that the Brucejack Project would not be economically viable for bulk mining; (2) negative results from the Bulk Sample Program; and (3) that the Cleopatra Vein was narrow and unrepresentative of the VOK region. For the reasons that follow, after accepting as true all well-pleaded facts alleged in the Second Amended Complaint and drawing all reasonable inferences in Plaintiffs' favor, I find that there is no basis for a reasonable trier of fact to conclude that Pretium did not honestly believe its forecasts for the Brucejack Project at the time that it issued the forecasts.
At the outset, the parties disagree regarding whether Pretium's estimates were expressions of opinion or statements of fact. To resolve this dispute I refer to the discussion in Omnicare concerning the distinction between facts and opinions. The Court held that in some instances an opinion is purely a statement of opinion, while in other situations an opinion contains embedded statements of fact. Omnicare, 135 S.Ct. at 1327. "A fact is a thing done or existing," whereas "[a]n opinion is a belief, a view, or a sentiment
Pretium hired two independent QPs specifically tasked with providing mineral estimates — Snowden and AMC — and another QP, Tetra Tech, for overall project management and to complete the June 2013 Feasibility Study. (Michael Decl. Ex. 8 at 1-1, 1-4, 2-1.) Strathcona was not hired to provide mineral estimates or to participate in the June 2013 Feasibility Study. (Id.) Nonetheless, Strathcona informed Pretium that it did not agree with the Snowden model or Pretium's estimates concerning the Brucejack Project. (See SAC ¶¶ 72-73.) With regard to QPs, the Second Amended Complaint alleges that the "lynchpin of the QP is independence" and that "an independent QP's opinions and findings are presumed to be unbiased and fact-based." (Id. ¶ 64.) Therefore, the opinions and findings of Snowden, Tetra Tech, AMC, and Strathcona are "presumed to be unbiased and fact-based."
According to the SAC, "Pretium criticized Strathcona's conclusions as premature and claimed that Strathcona should have waited for the Program to be complete." (Id. ¶ 16.) Pretium later explained that Strathcona formulated its opinion on the basis of "approximately 20% of the underground drilling results, no assay results from the sample tower and no results from production." (Id. ¶ 74.) In addition, Pretium had expressed concern "that the sampling tower approach for the Valley of the Kings deposit may be flawed." (Id. ¶ 16.) Plaintiffs point to no facts that show that Pretium did not expect and believe the final results of the Bulk Sample Program would support its estimates of the Brucejack Project. Instead, these facts support Pretium's narrative that it simply did not find Strathcona's conclusions regarding the Brucejack Project to be credible because they were premature. See In re Sanofi-Aventis Sec. Litig., 774 F.Supp.2d 549, 567 (S.D.N.Y. 2011) ("Plaintiffs cannot premise a fraud claim
The theme of Plaintiffs' Second Amended Complaint is essentially that Pretium spun the tale of El Dorado, touting the VOK as a place of immense gold reserves and untold riches yet to be discovered. However, in the case of El Dorado the treasure seekers actually believed that the illusive city of gold existed. Such appears to the case here. Under Plaintiffs' theory, Pretium invested tens of millions of dollars into drilling and associated studies in a venture that it secretly believed would not be profitable. See City of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 170 (3d Cir. 2014) ("[T]he initiation of Phase 3 cost millions of dollars and required FDA approval, rendering it improbable that defendants would have continued if they did not believe their interpretation of the interim results or if they thought the drug a complete failure."); Davidoff v. Farina, No. 04 Civ. 7617(NRB), 2005 WL 2030501, at *11 n.19 (S.D.N.Y. Aug. 22, 2005) ("[I]t would have made no economic sense for defendants to invest literally billions of dollars in a venture that they knew would fail."). Such a theory is implausible; therefore, Plaintiffs have failed to plead subjective falsity. And Plaintiffs have not, and in fact cannot, plead objective falsity because Pretium's projections have yet to be realized — the total amount of gold in the VOK and the amount of gold that the Brucejack Project will produce over 22 years is still unknown. The mere fact that Strathcona disagreed with these estimates does not make the estimates objectively false. In fact, since Strathcona was not tasked with providing mineral estimates or with participating in the management or completion of the June 2013 Feasibility Study it was arguably not positioned to credibly cast doubt on the estimates. Following Omnicare, however, my inquiry does not end here.
The principal thrust of the SAC's allegations is that Pretium's opinion statements omitted material facts rendering its predictions and estimates concerning the Brucejack Project misleading. "An opinion statement, however, is not necessarily misleading when an issuer knows, but fails to disclose, some fact cutting the other way." Omnicare, 135 S.Ct. at 1329. "[W]hether an omission makes an expression of opinion misleading always depends on context." Id. And "an investor reads each statement... in light of all its surrounding text, including hedges, disclaimers, and apparently conflicting information." Id. at 1330.
Here, Pretium fully disclosed to investors (prior to even beginning the sample tower program) that Strathcona would report the sample tower results in its report on the program after all of the data was compiled later in the year. (See Michael Decl. Ex. 5 at 2 (assay results of the sample tower would "be reported as they are received," but that "Strathcona's report on the Program is expected later in the year after compilation of all data"), Ex. 6 at 1-2 (noting that the "drill program will run concurrently with the excavation of the 10,000-tonne bulk sample scheduled to begin in mid-June and be completed in August.").) Strathcona, however, resigned before preparing its report. (See id. Ex. 13 at 3.) Reasonable investors therefore would not and could not have expected that Pretium's estimates would be based on a non-existent report. Nor would reasonable investors have found Pretium's disclosures of drilling results from the Cleopatra Vein misleading because, contrary to the conclusory allegations in the SAC, Pretium already disclosed information from which a reasonable investor could have concluded that the Cleopatra Vein was narrow and not typical of the VOK region. (See supra Section IV.A.2.)
Although Defendants do not directly dispute that Strathcona's opinions were material facts, I address this issue to remove any doubt concerning the materiality of Strathcona's opinions. "[A] reasonable investor may, depending on the circumstances, understand an opinion statement to convey facts about how the speaker has formed the opinion — or, otherwise put, about the speaker's basis for holding that view." Omnicare, 135 S.Ct. at 1328. As explained above, Pretium disclosed that Strathcona was the independent QP overseeing the Bulk Sample Program — the purpose of which was to confirm the accuracy of Snowden model's predictions about the Brucejack Project. Its opinions therefore consisted of the type of information that a reasonable investor rightly could have expected to form the basis of Pretium's estimates. See Omnicare, 135 S.Ct. at 1328. Here, Strathcona's opinions were disclosed on October 22, 2013:
(Michael Decl. Ex. 13 at 3.) In Strathcona's opinion, Pretium had provided misleading information to investors.
The key inquiry, however, is when Pretium's duty to disclose Strathcona's opinions arose. It is true that "once a party chooses to speak, ... it has a `duty to be both accurate and complete.'" Plumbers' Union Local No. 12 Pension Fund, 753 F.Supp.2d at 180 (quoting Caiola, 295 F.3d at 331). However, a party is also entitled to investigate potentially negative information before making statements to the market. As Chief Judge Easterbook explained: "Prudent managers conduct inquiries rather than jump the gun with half-formed stories as soon as a problem comes to their attention.... Taking the time necessary to get things right is both proper and lawful. Managers cannot tell lies but are entitled to investigate for a reasonable time, until they have a full story to reveal." Higginbotham v. Baxter Int'l, Inc., 495 F.3d 753, 760-61 (7th Cir. 2007); see also In re Agnico-Eagle Mines Ltd. Sec. Litig., No. 11 Civ. 7968(JPO), 2013 WL 144041, at *21 (S.D.N.Y. Jan. 14, 2013) aff'd sub nom. Forsta AP-Fonden v. Agnico-Eagle Mines Ltd., 533 Fed.Appx. 38 (2d Cir. 2013) (summary order); Johnson v. Siemens AG, No. 09-CV-5310 (JG)(RER), 2011 WL 1304267, at *18 (E.D.N.Y. Mar. 31, 2011). That is precisely what Pretium did.
Pretium viewed Strathcona's opinions "as premature and claimed that Strathcona should have waited for the Program to be complete." (SAC ¶ 16.) In particular, Pretium was concerned "that the sampling tower approach for the Valley of the Kings deposit may be flawed." (Id.) Pretium investigated Strathcona's opinions for several months. As discussed above, it is unclear when exactly Pretium learned of Strathcona's concerns. At most, Pretium took four months — from around June 23, 2013, when Strathcona allegedly alerted Pretium that it did not believe that the early results conformed with the 2012 Resource
Finally, with regard to Defendants' scienter, Plaintiffs allege no facts suggesting that Defendants engaged in any deliberate illegal behavior; therefore, I only consider whether Plaintiffs adequately plead recklessness. Defendants assert that Plaintiffs have not adequately pled that they had the motive and opportunity to commit fraud because the allegations of the Second Amended Complaint are too generalized to allege the proper "concrete and personal" benefit required by the Second Circuit. (Defs.' Mem. 25.) I agree.
In order to show motive and opportunity, Plaintiffs must allege that Pretium or the Individual Defendants "benefitted in some concrete and personal way from the purported fraud." ECA, 553 F.3d at 198 (quoting Novak, 216 F.3d at 307-08). Here, Plaintiffs point to no facts suggesting that Defendants had a motive to make fraudulent misstatements. They do not allege that Defendants sold any company stock prior to Pretium's purported corrective disclosures. Nor do they allege that Defendants directly profited from the alleged misstatements or omissions.
Rather, Plaintiffs assert that: (1) Pretium's "future hinges on proving the economic feasibility of mining" the Brucejack Project, (SAC ¶ 3); and (2) "Defendant Quartermain was subject to an employment contract with Pretium whereby he was entitled to an annual performance bonus of 0.25% of the annual increase in the market capitalization of the Company (provided the increase in market capitalization was 10% or more)," (id. ¶ 156). These purported motives are legally insufficient. The Second Circuit has unequivocally held that "[m]otives ... common to most corporate officers, such as the desire for the corporation to appear profitable and the desire to keep stock prices high to increase officer compensation, do not constitute `motive' for purposes of this inquiry." ECA, 553 F.3d at 198. And "[t]he alleged motivation of a corporation to raise money to prevent the negative ramifications of a drop in stock price — even if such a drop would allegedly threaten the `survival' of a company — is far too generalized (and generalizable) to allege the proper `concrete and personal' benefit required by the Second Circuit." In re PXRE Grp., Ltd. Sec. Litig., 600 F.Supp.2d 510, 532 (S.D.N.Y. 2009). There is also an insufficient link between the corporate performance alleged and Defendant Quartermain's bonus; "[i]f scienter could be pleaded solely on the basis that defendants were motivated because an inflated stock price or improved corporate performance would increase their compensation, `virtually every company in the United States that experiences a downturn in stock price could be forced to defend securities fraud actions. Incentive compensation can hardly be the basis on which an allegation of fraud is predicated.'" ECA, 553 F.3d at 201 (quoting
Instead, Plaintiffs posit that Defendants possessed the requisite scienter under a theory of conscious misbehavior or recklessness. I have determined that the only surviving actionable misstatement in this case is Pretium's disclosure that planning was underway with Strathcona to alter the Bulk Sample Program and to continue drilling in the Cleopatra Vein and need not consider whether Plaintiffs properly alleged scienter as to the dismissed alleged misleading statements. However, in an abundance of caution, I review whether Plaintiffs set forth facts indicating Defendants' recklessness as to all categories of alleged misstatements and/or omissions. As explained below, Plaintiffs failed to do so.
Plaintiffs failed to allege scienter with regard to Defendants' misstatement related to Pretium's disclosure that planning was underway with Strathcona to alter the Bulk Sample Program and continue drilling in the Cleopatra Vein. Pretium's disclosure of accurate information regarding the discovery and composition of the Cleopatra Vein precludes a finding of Defendants' scienter. Pretium disclosed that the Cleopatra Vein was discovered "in an area of projected extreme grade mineralization," (July 23rd Press Release 1 (emphasis added)), and Pretium also produced a map of the level plan and cross-sections of the Cleopatra Vein and provided the geological structure's dimensions — approximately 85 meters along the strike and 50 meters above the 1345-meter level and 50 meters below the 1345-level, (Id.; see also Aug. 1st Press Release 3; Aug. 15th Press Release 2). These announcements demonstrate candor, care, and prudence, not recklessness.
The Second Amended Complaint makes clear that there was a difference of opinion between Strathcona and Pretium concerning the potential for economic success of the Brucejack Project. "However, differences of opinion, even stark differences... do not reveal scienter." City of Austin Police Ret. Sys. v. Kinross Gold Corp., 957 F.Supp.2d 277, 299 (S.D.N.Y. 2013). Moreover, Plaintiffs generally state that this forecast was misleading because the sample tower results did not support the forecast and Strathcona did not believe that the Brucejack Project would be economically viable. However, nowhere in the Second Amended Complaint do Plaintiffs identify with specificity the documents or way in which this contrary information was communicated to Defendants. See Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 196 (2d Cir. 2008) ("[W]here plaintiffs contend defendants had access to contrary facts, they must specifically identify the reports or statements containing this information."
Because the § 10(b) claims must be dismissed, there is no basis for a primary violation upon which any § 20(a) claim might be predicated. Consequently, Defendants' motion to dismiss Plaintiffs' claim brought pursuant to § 20(a) is also granted.
For the foregoing reasons Plaintiffs' Second Amended Complaint is DISMISSED and Defendants' Motion to Dismiss is GRANTED. The Clerk of the Court is respectfully directed to terminate the pending motions, (Docs. 60, 84), and close this case.
SO ORDERED.
