A federal district court in New Jersey dismissed a putative federal securities class action, for now, against a bitcoin mining operations company and several of its officers and directors over allegations that they misled investors leading up to and following its initial public offering.
Partners Edmund Polubinski and Mari Grace, counsel David B. Toscano and associates Charlotte M. Savino, Paulina Perlin, Elaina Marx, Alyssa Metcalf and Paige Whitaker at the Am Law 20 law firm Davis Polk & Wardwell represented the defendant, Iris Energy Ltd., along with its in-house counsel in the action brought by the lead plaintiff, Scott Sterling.
“When you boil down allegations that involve matters in the crypto space and cut through the complexity, the basics of the U.S. securities laws still apply,” Polubinski, who is based in New York, said in an interview. “Which is to say that the plaintiffs can’t bring claims for violations of the U.S. securities laws unless they can identify an actual false or misleading statement.”
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Laurence Rosen of the Rosen Law Firm in Newark, New Jersey, did not respond to a request for comment.
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Iris is organized under the laws of Australia and primarily uses renewable energy to power its mining operations. However, Iris does not hold bitcoin on its balance sheet. Its operations generate revenue by earning bitcoin through a combination of block rewards and transaction fees from mining and exchanging bitcoin for fiat currencies, such as the U.S. dollar, on a daily basis.
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In October 2021, Iris filed a registration statement on Form F-1 with the U.S. Securities and Exchange Commission, which the SEC declared effective in November. The next day, Iris conducted the initial public offering, issuing shares to the public at $28 under the ticker symbol “IREN.”
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However, the plaintiff shareholders challenged the accuracy of Iris’ disclosures in its IPO filings and several of its statements after it went public. The plaintiffs sought to recover their losses during the broad marketwide decline in the value of bitcoin in 2022, court records show.
To state a claim under Section 11 of the Securities Act, the plaintiffs must allege that they purchased securities pursuant to a materially false or misleading registration statement. For Section 12(a)(2) of the Securities Act, plaintiffs must allege that they purchased securities pursuant to a materially false or misleading “prospectus or oral communication.”
The plaintiffs also alleged violations of Section 10(b) and Rule 10b-5 of the Exchange Act, which creates liability for false or misleading statements or omissions of material fact impacting trading on the secondary market. These claims require: “(1) a material misrepresentation or omission, (2) scienter, (3) a connection between the misrepresentation or omission and the purchase or sale of a security, (4) reliance, (5) economic loss and (6) loss causation.”
Here, the plaintiffs alleged that Iris concealed risks in its IPO filings and other public disclosures, including about loans it obtained to fund data mining equipment. The plaintiffs also argued that Iris overstated its goodwill in its financials. The defendants, however, moved to dismiss the complaint in its entirety, arguing that none of the statements at issue was false or misleading.
Now, U.S. District Judge Jamel K. Semper of the District of New Jersey has granted the motion in a 41-page memorandum opinion and order that dismissed the complaint in its entirety.
In doing so, Semper agreed with the defense counsel that Iris had no duty to disclose every detail regarding its equipment loan financing and that the plaintiffs failed to allege anything misleading about Iris’ disclosures.
Semper also held that, as a matter of law, many of the statements challenged by the plaintiffs were nonactionable opinions and forward-looking statements. He did not rule on additional counts largely because of the failure to prove these three cited claims.
“In this case, the clients at Iris were smart and critical in all of the best ways, and we worked probably more closely than I have ever worked with any other in-house lawyers on any similar motion,” Polubinski said. “It wasn’t always easy or convenient because they are located in Australia, but it was worth it.”
Read the Opinion: