ese settlements merit serious consideration. Perhaps more than the monetary penalties imposed, the undertakings potentially have systemic and long-lasting impacts on these audit firms' operating structure. Such fundamental and lasting changes are likely to impact the auditors far more significantly than the one-time financial penalties imposed.It goes without saying that auditors would be well advised to keep their antennae up when it comes to increased enforcement activity, particularly when it comes to audits involving SPACs.Notes The SEC has used inexperienced and insufficient staffing as a basis for charges in other enforcement cases against auditors in the past. See, e.g., here, here and here. 17 CFR § 210.2-02(b)(1). 15 U.S.C. § 78d–3; 17 CFR § 201.102(e)(1)(ii) and (iv). This order and the 38-page order in the earlier matter are recommended reading for auditors working with SPACs or startup company clients with limited operating history. 15 U.S.C. § 78m; 17 C.F.R. § 240.13a-19. 15 U.S.C. § 78n; 17 C.F.R. § 240.14a-9.

In Lee v. Fisher, No. 21-15923, 2023 U.S. App. LEXIS 13521 (9th Cir. June 1, 2023), the United States Court of Appeals for the Ninth Circuit, sitting en banc, affirmed the dismissal of a shareholder derivative complaint alleging, among other things, violations of Section 14(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §78n(a), and SEC Rule 14a-9, 17 C.F.R. §240.14a-9 (collectively, the “Proxy Claims”), enforcing a forum-selection clause in the defendant company’s bylaws designating the Delaware Court of Chancery as the exclusive jurisdiction for adjudicating any derivative claims involving the company. By affirming the dismissal, the Ninth Circuit called into question whether the Proxy Claims were properly classified as derivative claims, noting that the Exchange Act’s antiwaiver provision was not triggered when the shareholder plaintiff could pursue the Proxy Claims directly in federal court. The Ninth Circuit’s decision creates a circuit split with the Seventh Circuit’s decision in Seafarers Pension Plan ex rel. Boeing Co. v. Bradway, 23 F.4th 714 (7th Cir. 2022), raising the specter that the United States Supreme Court eventually will weigh in on the issue.The defendant company is headquartered in California and incorporated in Delaware. Its bylaws included a forum-selection clause designating the Delaw

to fall during the first months of the COVID-19 pandemic, Party B informed Finjan of its intent to purchase more than 5 percent of Finjan’s stock on the open market, and also offered to purchase Finjan’s outstanding stock for $1.50 per share. With this offer in hand, Finjan contacted Fortress and eventually negotiated a sale of all outstanding stock for $1.55 per share, which was subject to shareholder approval.Finjan’s management issued a statement to its shareholders recommending that they vote in favor of the sale. As part of the statement, Finjan included financial projections that were significantly lower than projections the company had issued several months prior, as well as an analysis based on those projections showing that the $1.55 per share offer was reasonable. Finjan’s shareholders voted to approve the transaction.The plaintiff initiated a lawsuit on behalf of himself and a putative class of Finjan shareholders under Section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e) (“Section 14(e)”), which prohibits false statements or omissions in connection with a tender offer. According to plaintiff, Finjan and its management (together, the “defendants”) knew that the projections and share estimates in their statement to shareholders understated Finjan’s value and that the defendants intentionally provided these unreasonable estimates to make Fortress’s offer appear more attractive.The District Court’s DecisionThe district court dismissed the complaint with prejudice on the basis that plaintiff failed to adequately allege a misrepresentation. Recognizing that the financial projections were statements of opinion, the district court reasoned that plaintiff could plead that the projections were false only through allegations that the defendants did not genuinely believe them. Finding plaintiff’s allegations insufficient on this front, the district court dismissed the action.Notably, in so holding, the district court applied three separate heightened pleading sta

tlas Technology Group LLC (“Atlas”), a technology-focused investment bank, to prepare an opinion for shareholders about the fairness of the sale.Atlas concluded that the sale price of $1.55 per share was within the reasonable range of estimated share values.The Board provided shareholders a statement that incorporated Atlas’s assessment of share value estimates, concluded that the share value estimates were reasonable, and recommended that shareholders approve the sale.Finjan shareholders approved the sale, which occurred in June 2020.Plaintiff Robert Grier, a then-shareholder of Finjan, filed a class action against the Board.Grier alleged that the Board had violated Section 14(e) of the Securities Exchange Act of 1934, which prohibits any person from “mak[ing] any untrue statement of material fact ... in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation.”15 U.S.C. §78n(e).When the alleged false statement is an opinion, Section 14(e) can only be satisfied under special circumstances.One such circumstance is “subjective falsity”—that is, when the speaker did not actually believe the statement he or she made.In this case, Grier alleged that the Board did not actually believe that the sale price or Atlas’s estimate of Finjan’s share value was reasonable.Grier claimed that the Board undervalued Finjan’s shares in order to deceive shareholders into believing that the sale price was a good bargain and approving the sale.The district court dismissed the complaint.It applied three heightened pleading standards to subjective falsity: Federal Rule of Civil Procedure 9(b), Section 4(b)(1) of the Private Securities Litigation Reform Act (“PSLRA”), and Section 4(b)(2) of the PSLRA.Rule 9(b) and Section 4(b)(1) require particularity with respect to allegations of fraud or untrue statements of material fact.Section 4(b)(2), however, requires more.It states: “[I]n any

7 Section 14(a) provides: “It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of a national securities exchange or otherwise, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered pursuant to section 781 of this title.” 15 U.S.C. § 78n(a).8 Rule 14a-9 provides: “No solicitation subject to this regulation shall be made by means of any proxy statement . . . containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading. . . .” 17 C.F.R. § 240.14a-9.

10 If the Ninth Circuit agrees, a Circuit split would exist, ripe for resolution by the U.S. Supreme Court.1 Seafarers Pension Plan v. Bradway, 23 F.4th 714 (7th Cir. 2022)2 See, e.g., Ocegueda on behalf of Facebook v. Zuckerberg, 526 F. Supp. 3d 637 (N.D. Cal. 2021); Lee v. Fisher, No. 20-cv-06163-SK, 2021 WL 1659842 (N.D. Cal. Apr. 27, 2021), appeal filed, No. 21-15923 (May 27, 2021).3 See https://legis.delaware.gov/json/BillDetail/GetHtmlDocument?fileAttachmentId=49812.4 15 U.S.C. § 78n(a)(1).5 15 U.S.C. § 78aa.6 15 U.S.C. § 78cc(a).7 Seafarers Pension Plan, 23 F.4th at 720 (quoting 8 Del. C. § 115).

The SEC does not hesitate to apply its own views as to the adequacy of the aerospace engineering aspects of the Mission.[14] 15 U.S.C. § 77q(a)(3).[15] 15 U.S.C. § 78n(a).[16] 17 C.F.R. § 240.14a-9.[17] Momentus Order, supra note 1, ¶ 63.[18] 15 U.S.C. § 77g(b)(3) defines a “blank check company” as a development stage company that issues penny stock, as defined under 15 U.S.C. 78c(a)(51), either (A) has “no specific business plan or purpose,” or (B) indicates its business plan is to merge with an unidentified company or companies.”[19] 15 U.S.C. § 77g(b)(1) requires the SEC to prescribe special rules concerning registration statements for blank check offerings.

rberg, Case No. 20-cv-04444-LB, a shareholder derivative suit purportedly on behalf of nominal defendant Facebook against members of its board of directors and executive team, which challenged alleged lack of diversity and discriminatory advertising and hiring practices.This action is one of several shareholder derivative lawsuits that have been filed since July 2020 against the boards and executive leadership of various companies focusing on alleged lack of diversity at the top levels of these companies, and specifically lack of Black board members and executives. This is the first of such suits to have reached a decision on a motion to dismiss and therefore is the first to provide insight as to the likely success of these actions.The plaintiff brought claims for (i) breach of fiduciary duty; (ii) aiding and abetting the breach of fiduciary duty; (iii) abuse of control; (iv) unjust enrichment; and (v) false and misleading statements, in violation of Section 14(a) of the Exchange Act, 15 U.S.C. § 78n(a), and SEC Rule 14a-9, 17 C.F.R. § 240.14a-9.As to the state law claims, the court dismissed the action for failing to make a pre-suit demand or demonstrate that demand was excused as futile. The court reasoned that to demonstrate demand futility, the plaintiff needed to “plead particularized facts that demonstrate that the directors acted with scienter, i.e., that they had actual or constructive knowledge that their conduct was legally improper.”

Section 14(e) provides that “it shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation.” 15 U.S.C. § 78n(e). Like Section 10(b), Section 14(e) includes no express private right of action for investors to pursue damages, but all courts of appeals that have considered the issue have found or assumed that a private right of action exists under Section 14(e).

This holding departs from longstanding rulings by five other federal appeals courts (the Second, Third, Fifth, Sixth and Eleventh circuits) that have found scienter to be required for Section 14(e) claims. Section 14(e) provides that "It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer …." 15 USC § 78n(e). The case decided by the Ninth Circuit, Varjabedian v. Emulex, arose from Avago's 2015 acquisition of Emulex by tender offer.