Citations
- 117 F. Supp. 3d 1145
Full opinion text
OPINION AND ORDER
MICHAEL H. SIMON, District Judge.
This putative class action securities fraud case is brought by shareholders (“Plaintiffs”) of Defendant Galena Biophar-ma, Inc. (“Galena” or “Company”). Plaintiffs allege that Galena, certain members of Galena’s Board of Directors (“Board”), and executive officers of Galena engaged in a fraudulent scheme to promote Galena and increase its stock price so that many of Galena’s officers and directors could (and did) sell their personally-owned Galena stock at artificially high prices, in a “pump and dump” insider trading scheme. Plaintiffs further allege that The Dream-Team Group LLC (“DreamTeam”), its Managing Member Michael McCarthy, its employee or agent Thomas Michael Meyer, Lidingo Holdings, LLC (“Lidingo”), and Lidingo’s Managing Member Kamilla Bjorlin, participated in the scheme by publishing bullish articles, comments, blogs, posts, and email blasts, including having authors publish articles using false aliases, without including the required disclosure that they were being paid by Galena to try to inflate its stock price.
Before the Court are five motions to dismiss: (1) a motion to dismiss filed by Defendants Rudolph Nisi, Sanford Hills-berg, Steven Kriegsman, Stephen Galliker, and Richard Chin (collectively “Outside Directors”) (Dkt. 80); (2) a motion to dismiss filed by Defendant Mark J. Ahn (Dkt. 81); (3) a motion to dismiss filed by Defendants Mark Schwartz, Ryan Dunlap, and Remy Bernarda (collectively “Management Defendants”) and Galena (Dkt. 82); (4) a motion to dismiss filed by Defendants Li-dingo and Bjorlin (collectively “Lidingo Defendants”) (Dkt. 136); and (5) a motion to dismiss filed by Defendants Dream-Team and McCarthy (collectively “Dream-Team Defendants”) (Dkt. 138). For the following reasons, the pending motions to dismiss are granted in part and denied in part.
STANDARDS
A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir.2010). In evaluating the sufficiency of a complaint’s factual allegations, the court must accept as true all well-pleaded material facts alleged in the complaint and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir.2012); Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir.2010). To be entitled to a presumption of truth, allegations in a complaint “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.2011). All reasonable inferences from the factual allegations must be drawn in favor of the plaintiff. Newcal Indus. v. Ikon Office Solution, 513 F.3d 1038, 1043 n. 2 (9th Cir.2008). The court need not, however, credit the plaintiffs legal conclusions that are couched as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
A complaint must contain sufficient factual allegations to “plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.” Starr, 652 F.3d at 1216. “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 663, 129 S.Ct. 1937 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).
BACKGROUND
A. Company Background
As alleged in the Consolidated Class Action Complaint for Violations of the Federal Securities Laws (“Consolidated Complaint” or “CAC”), Galena is a biotechnology company based in Lake Oswego, Oregon. In 2007 the Company was spun off from its parent, CytRx Corporation (“CytRx”). CytRx remained Galena's majority owner until 2008. In connection with the spin-off, Ahn was appointed a director of Galena. Ahn became Galena’s President and Chief Executive Officer (“CEO”) in March 2011.
Galena focuses on the development and commercialization of targeted oncology treatments. Galena’s only commercial-stage product is Abstral®, a propriety form of fentanyl, an opiate analgesic. Fentanyl can be abused and has been resold as a street drug. At least four other companies already offer generic fentanyl in the United States. As alleged by Plaintiffs, Galena is “far from obtaining financial success from selling Abstral.” Galena also is pursuing the development of cancer therapeutics, including its main product candidate, NeuVaxTM, for the treatment of breast cancer.
B. Galena’s Relationship with Dream-Team and Lidingo
Galena’s relationship with DreamTeam dates back to 2008, and its relationship with Lidingo dates back to 2012. Galena previously had hired these investor relations firms to tout Galena’s stock in advance of stock offerings. In early summer 2013, Galena did not have any open contracts with either company.
In July 2013, Ahn asked Galena’s Vice President of Marketing & Communications, Reray Bernarda, to interview three investor relations firms that could potentially increase Galena’s stock price. Two of these companies were Tiberend Strategic Advisors (“Tiberend”) and Dream-Team. Bernarda recommended that Galena hire Tiberend, a traditional, full service investor relations firm spécializing in the healthcare and life sciences industry! Ber-narda recomménded that Galena not hire DreamTeam. Bernarda noted that Tiber-end treated writers as “journalists,” unlike DreamTeam. Bernarda further noted that if Galena hired DreamTeam, she believed it would cause “issues.” Galena hired Ti-berend at $3,500 per month for an initial three-month trial.'
Despite Bernarda’s recommendation to the contrary, Ahn also hired DreamTeam. DreamTeam began its work under a 90-day, $25,000 contract for “Platinum Services” dated July 23, 2013 and a 240-day, $50,000 contract also dated in July 2013. The total monthly payment to DreamTeam was approximately $14,583.
In addition, Ahn signed a contract with Lidingo oh August ’1, 20Í3, which obliged Galena to pay Lidingo a cash fee of $20,000 per month plus expenses. The contract also gave Lidingo an option to buy 250,000 shares of Galena common stock at an exercise price based on the day the agreement closed, 100,000 shares of which vested immediately. Plaintiffs allege that Ahn did not have the corporate authority to award stock options.
C. Alleged Scheme
Plaintiffs allege that Galena and its management and directors entered into an unlawful promotional scheme with Dream-Team and Lidingo artificially to inflate the stock price of Galena using a variety of different channels. Galena intended that DreamTeam and Lidingo would place misleading articles on investor websites touting Galena. DreamTeam and Lidingo did so, often using third parties and aliases that falsely claimed to be established, credible investment professionals. The articles did not disclose the paid relationship with Galena and often included false disclaimers that they were not paid promotions. Galena required that it approve every article before that article could be published, and either Ahn or Bernarda approved each article.
By way of example, on or about August 6, 2013, DreamTeam submitted to the online investment advice website Seeking Alpha an article entitled “Galena Biop-harma Presents an. Attractive Investment Opportunity.” This article recommended investment in Galena stock, but failed to disclose any financial relationship between the author, who was identified only as “Wonderful Wizard,” and either Galena or DreamTeam. The article affirmatively misrepresented that it was not a paid promotion.
Another article placed by DreamTeam touting Galena in Seeking Alpha appeared on November 22, 2013, this time by an author identified only as “Kingmaker,” who also failed to disclose any relationship with either Galena or DreamTeam. These two articles about Galena in Seeking Alpha were presented as being written by two different people, each recommending investment in Galena, but were allegedly actually written by the same author. As of November 26, 2013, DreamTeam had caused to be published 18 articles about Galena on Seeking Alpha.
DreamTeam and Lidingo would' also monitor social media, post oh electronic message boards and blogs, and send email blasts relating to Galena. They used numerous aliases on Facebook, twitter, and other social networking sites to call attention to the positive (and allegedly misleading) articles and to respond to any negative articles or comments about Galena. By way of example, Plaintiffs allege that hours after Galena and DreamTeam caused to be published a pro-Galena article on August'6, 2013, two aliases posted on a Yahoo! Finance Galena page that the article was “worth checking out.” One of these posts . indicated that the person posting would buy more Galena stock the next day. Similarly, on November 27, 2013, Galena and DreamTeam caused another article to be published on the website Seeking Alpha using the alias “Stock Whisper” and then posted on DreamTeam’s blog,, stating that “Stock Whisper” had published a bullish article about Galena. The post on Dream-Team’s blog summarized and analyzed the Seeking Alpha article without disclosing that DreamTeam or its agents had, in fact, authored both. Some of the articles published resulted in Galena’s stock price gaining fifteen percent in a single day.
Many different fraudulent aliases and third parties were used by DreamTeam and Lidingo to convince investors that there was a broad base of independent and professional investors supporting Galena. The fact that many different “voices”, appeared to be touting Galena persuaded investors that the conclusions must be accurate and that there was heavy demand for Galena’s stock.
Shortly after retaining Lidingo and DreamTeam in July 2013, Galena initiated a secondary offering. It filed an amended registration statement with the Securities Exchange Commission (“SEC”) on August 9, 2013. On September 18, 2013, Galena conducted a public offering, selling 17,500,-000 units, each consisting of one share of common stock and a warrant to purchase 0.35 of a share of common stock at an exercise price of $2.50 per share, for net proceeds to Galena of $32.6 million. Galena raised additional net proceeds of $5.2 million through the underwriters’ exercise of their over-allotment option.
Plaintiffs further allege that Galena, DreamTeam, Lidingo, and their respective management personnel entered into this scheme with the plan to manipulate Galena’s stock price. Galena’s officers and directors intended to wait until the share price of Galena was artificially inflated as a result of DreamTeam and Lidingo’s misleading promotional campaign and then, in possession of material, adverse, non-public information, sell their personally-held stock.
On November 22, 2013, the same day that the Seeking Alpha bullish article was published, Galena’s Compensation Committee granted a total of 2.55 million shares of stock options to Galena’s officers and directors. These options issued in November carried an exercise price of $3.88 per share. This was the only time that options had been awarded by the Compensation Committee at that time of year. The usual practice by the Compensation Committee had been to grant stock options to Galena’s officers and directors in January of any given year.
By early January 2014, Galena’s stock price had risen significantly. In July 2013, it traded at approximately $2 per share. By January 16, 2014, it had more than tripled and was trading at $7.48 per share. Beginning January 17, 2014, and within a period of eighteen trading days, through February 12, 2014, six of Galena’s officers and directors sold all or nearly all of their personally-held Galena stock; a seventh sold approximately 20 percent of his shares. Collectively, these sales totaled more than $16 million. The Consolidated Complaint alleges that these were all direct sales and not made pursuant to any pre-arranged Rule 10b5-l trading plan. Plaintiffs further allege that none of these defendants had engaged in open market sales of Galena stock during the four years before January 2014.
D. Exposing the Alleged Scheme
The scheme allegedly began to unravel as news of the insider trades entered the market. Plaintiffs allege that from January 17, 2014 through January 31, 2014, based on news of the insider trades, Galena’s stock price fell approximately 29.5 percent, from $7.48 to $5.27. On February I, 2014, analyst Matt Gravitt published an article on Seeking Alpha, titled “Galena Biopharma: Numerous Red Flags Suggest a Significant Overvaluation.” This article revealed that Galena had been paying Mis-sionlR, a DreamTeam brand, to promote Galena. Galena’s stock price fell an additional 20 percent, from $5.27 to $4.22.
On February 12, 2014, journalist Adam Feuerstein published an online article on TheStreet.com, titled “Galena Biopharma Pays for Stock-Touting Campaign While Insiders Cash Out Millions.”- In his article, Mr. Feuerstein alleged that Galena was engaging in a misleading brand-awareness campaign aimed at boosting its stock price. The article also reported that Galena had paid DreamTeam to publish articles promoting the Company’s stock without disclosing who paid for those articles. On this news, Galena’s stock dropped from $5.22 to $4.26, a one-day decline of approximately 16 percent. None of the Selling Defendants sold any personally-held stock after February 12, 2014. Plaintiffs allege that within hours of this article’s publication, Galena fired DreamTeam. Plaintiffs further allege that DreamTeam then attempted to remove evidence of its relationship with Galena by deleting a disclaimer DreamTeam had posted on its website noting that Galena had paid MissionIR for promotional services and removing almost all articles related to either Galena or CytRx from DreamTeam’s websites.
Two days later, on February 14, 2014, an analyst published an article on Seeking Alpha, attributing Galena’s stock price performance since November 2013 to DreamTeam’s promotional, efforts. That same day, Galena published an open letter to its investors. The letter admitted that the Company had paid DreamTeam to promote Galena’s stock and that Company insiders had sold, or.“divested” personally-owned shares in mid-January 2014, but denied all other allegations. On that same day, February 14, 2014, Galena’s stock price dropped $0.63 per share to close at $3.73 per share, a one-day decline of 14 percent.
On March 13, 2014, financial analyst and author Richard Pearson published the results of his investigation of the relationship between Galena, CytRx, and DreamTeam on Seeking Alpha. The article detailed Mr. Pearson’s findings after going “undercover” as a writer for DreamTeam assigned to promote Galena. Mr. Pearson also released his emails with Meyer, who claimed to be an employee of DreamTeam working, closely with McCarthy. Mr. Pearson’s investigative article stated that he was told that DreamTeam’s clients would have to approve and edit all articles and that Mr. Pearson was not allowed to disclose that he was being paid to write the pro-Galena articles.
On March 17, 2014, two trading-days after the publication of the Pearson ex-posé, Galena, announced that it was under investigation by the SEC, stating in its Form 10-K annual report: “In February 2014, we learned that the SEC is investigating certain matters relating to our company and an outside investor-relations firm that we retained in 2013. We have been in contact with the SEC staff through our counsel and are cooperating with the investigation.” Upon, disclosure of the SEC investigation, Galena’s common stock share price dropped to $2.82, representing a 12 percent single day loss.
On August 18, 2014, Galena’s Board held a special meeting. On August 20, 2014, Mr. Feuerstein announced that a source close to Galena had. informed him that Ahn had been fired for cause at that special meeting. As alleged by'Plaintiffs, at the time of Mr. Feuerstein’s report, neither Galena nor anyone else had announced that Ahn had left the company.
On August 21, 2014, Galena issued a press release claiming that Ahn had “resigned” as President and CEO. On August 22, Galena filed a report with the SEC. This report stated that Ahn had'“resigned” effective August 20,-2014. This report also stated that “[i]n accordance with the terras his employment agreement ... no severance or other compensation is payable to Dr. Ahn.”
On August 21,2014, Galena also issued a press release that stated Ahn had resigned “to pursue other long held personal and professional goals.” Plaintiffs’ allege, however, that Ahn’s employment agreement; dated March 31, 2011, provides that Ahn will receive severance unless he was fired for cause or resigned without good reason;
E. Galena’s Additional Alleged Misrepresentations
In addition to the alleged scheme and the alleged misrepresentations made through the promotional campaign, Plaintiffs allege that Galena made false or misleading statements in its own name. To conduct its September 2013 public offering, on September 13, 2013, Galena entered into an Underwriting Agreement, signed by Ahn. This Underwriting Agreement was filed as an exhibit to Galena’s 8-K filing with the SEC made that same day. Plaintiffs allege this Underwriting Agreement was false or misleading because it claimed that Galena was not engaging in any conduct that would “manipulate” its stock price.
The same day, also as part of its secondary offering, Galena published a Prospectus. Plaintiffs allege that this Prospectus is misleading and contains material omissions because it lists several possible reár sons why Galena’s stock price might fluctuate, but does not disclose the alleged promotional scheme as one of those reasons.
On November 6, 2013, Galena filed a Form 10-Q with the SEC, signed by Ahn and Vice President and Chief Financial Officer Ryan Dunlap. Plaintiffs allege this form is false or misleading because it asserts that no material facts are omitted from the report and that the signatories have disclosed to Galena’s auditors any fraud that involves Galena’s management or other employees. ' Plaintiffs also allege that Galena’s Code of Ethics is false or misleading because it is publicly available and states that Galena will not tolerate conduct that risks a violation - of federal law. ■
DISCUSSION
A. Jurisdiction over DreamTeam Defendants
The DreamTeam Defendants originally argued that, the Court does not have personal jurisdiction over either DreamTeam or McCarthy. Plaintiffs responded that, pursuant to the Ninth Circuit’s holding in Sec. Investor Prot. Corp. v. Vigman, 764 F.2d 1309, 1316 (9th Cir.1985), the Securities Exchange Act of 1934 (the “Exchange Act”) authorizes nationwide service and the only requirements for personal jurisdiction are that the defendant have minimum contact's with the United States. In their reply brief, the DreamTeam Defendants concede that the Court has personal jurisdiction over DreamTeam and'McCarthy. Accordingly, DreamTeam’s motion under Federal Rule of Civil Procedure 12(b)(2) is denied.
B. Securities Fraud Pleading Standards
To state a claim for securities fraud a plaintiff must prove:
(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.
Halliburton Co. v. Erica P. John Fund, Inc., — U.S. -, 134 S.Ct. 2398, 2407, 189 L.Ed.2d 339 (2014) (quotation marks omitted). A complaint alleging securities fraud in a private action for damages is also subject to heightened pleading standards.
First, the complaint must satisfy Federal Rule of Civil Procedure 9(b), which requires that “a party must state with particularity the circumstances constituting fraud or mistake.' Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” “To satisfy Rule 9(b), a pleading must identify ‘the who, what, when, where, and how of the misconduct charged,’ as well as ‘what is false or misleading about [the purportedly fraudulent] statement, and why it is false.’” Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1056 (9th Cir.2011) (quoting Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir.2010)).
Second, because Plaintiffs allege misrepresentations in violation of Section 10(b) of the Exchange Act, codified at 15 U.S.C. § 78j (“Section 10(b)”), and Rule 10b-5(b), that claim must satisfy the requirements of the Private Securities Litigation Reform Act (“PSLRA”), codified at 15 U.S.C. § 78u-4(b). The PSLRA requires a plaintiff plead with particularity each statement or omission that is alleged to be misleading and the reasons why it is misleading. 15 U,S.C. § 78u-4(b)(l). The PSLRA also requires that a plaintiff “state with particularity facts giving rise to a strong inference” that the defendant acted with scienter. Id. § 78u-4(b)(2). “The inference that the defendant acted 'with scienter need not be irrefutable, i.e., of the ‘smoking-gun’ genre, or even the ‘most plausible of competing inferences,’ but it “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, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314, 324, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
“Scienter may be established ... by showing that the defendants knew their statements were false, .or by showing that defendants were reckless as to the truth or falsity of their statements.” Gebhart v. S.E.C., 595 F.3d 1034, 1041 (9th Cir.2010). Recklessness in this context is “ ‘deliberate recklessness’ or ‘conscious, recklessness,’ and ... it includes ‘a subjective inquiry turning on ‘the defendant’s actual state of mind.’ ” S.E.C. v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1093 (9th Cir.2010) (quoting Gebhart, 595 F.3d at 1042). The Ninth Circuit has defined the required deliberate or conscious recklessness in the context of a securities fraud case as:
a highly unreasonable omission, involving ... an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either .known to the defendant or is so obvious that the actor must have been aware of it. [Additionally)] the danger of misleading' buyers must be actually known or so obvious that any reasonable man would be legally bound as knowing.
In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1053 (9th Cir.2014) (quotation marks and citation omitted) (first alteration in original).
C. Scienter
Defendants argue that Plaintiffs do not plead sufficient facts showing that any of them knew or were sufficiently reckless to the truth about the alleged fraud or scheme. Scienter is a necessary element for Plaintiffs’ claim under Section 10(b) and Rule 10b-5 (alleged against Galena, Ahn, Dunlap, Bernarda, the DreamTeam Defendants, and the Lidingo Defendants) and claims of insider trading (alleged against Defendants Ahn, Kriegsman, Chin, Nisi, Hillsberg, Galliker, and Schwartz). In evaluating scienter, courts must look at the complaint in its totality and not just the individual allegations of scienter. See Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir.2009) (“Thus, a court now reviewing a complaint’s scienter allegations under the PSLRA must ‘consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.’ The court must determine whether ‘all of the facts alleged, taken collectively, give rise to a strong inference of scien-ter, not whether any individual allegation, scrutinized in isolation, meets that standard.’ ” (emphasis in original) (quoting Tellabs, 551 U.S. at 322-23, 127 S.Ct. 2499) (citation omitted)); South Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir.2008) (“[A] court should look to the complaint as a whole, not to each individual scienter allegation as Silicon Graphics suggests. Thus, Tellabs counsels us to consider the totality of circumstances, rather than to develop separately rules of thumb for each type of scienter allegation.”).
a. Ahn
Defendants argue that Plaintiffs do not sufficiently allege Ahn’s scienter because there are no facts alleged showing that Ahn knew that writers were being paid to tout Galena, knew the writers were using multiple aliases, or knew the articles were not disclosing the paid relationship. Defendants also argue that a more reasonable inference is that Ahn was merely reviewing draft articles to “fact-check” for inaccuracies concerning Galena’s business.
Viewing the Consolidated Complaint as a whole, the Court finds that it sufficiently alleges facts giving rise to a strong inference of Ahn’s scienter. Plaintiffs assert numerous allegations relevant to Ahn’s scienter.
With respect to the alleged promotional scheme, Plaintiffs allege that Ahn: (1) corresponded extensively with Dream-Team and Lidingo; (2) overruled Bernar-da’s objection and hired DreamTeam in July 2013; (3) signed the contract between Lidingo and Galena, committing to pay Lidingo $20,000 per month when the “legitimate” public relations firm hired by Galena (Tiberend) was paid only $3,500 per month; (4) lied to certain Galena managers and claimed he had not renewed Li-dingo’s contract; (5) awarded Lidingo Galena stock options, despite the fact that Ahn did not have the authority to grant such options; (6) actively concealed from Galena’s Board and Compensation Committee the fact that Ahn had improperly granted Galena stock options to Lidingo; (7) knew that the Lidingo contract required Galena to cover Lidingo’s expenses, which included payments to writers; (8) signed a check to Lidingo in April 2012 to pay writers; (9) signed the contract between DreamTeam and Galena, committing to pay DreamTeam $25,000 per month for three months and then $50,000 total for approximately eight months; (10) reviewed draft articles from Lidingo and DreamTeam; (11) approved the articles before they could be published; (12) requested and received copies of published articles after publication; (13) knew the articles were part of the paid promotion; (14) knew that the.articles did not contain the required disclosure that the authors were paid, having received copies of the completed articles; and (15) lied about why Galena terminated DreamTeam and the quantity and quality of the relationship between Galena and DreamTeam.
Plaintiffs also allege that Ahn knew and allowed- insiders to sell stock during the height of .the promotion scheme in violation of Galena’s insider trading policy and conspired with Dunlap to “confuse” the market and hide the. insiders’ sell-off. To do so, Dunlap and Ahn encouraged the inside sellers to also make numerous “small buys” so that the insider selling SEC Form 4’s would be mixed with insider buying forms.
Plaintiffs further allege that Ahn sold a significant amount of personally-held Galena stock in a manner inconsistent with his historical trading practices and after the stock had increased in price. He then publicly asserted a false reason for his insider sales, falsely stating that he was precluded from selling Galena stock for nine months that ended in January 2014, when in fact the “blackout” continued until March 2014.
On January 16, 2014, Galena’s stock hit its highest price since 2010. Plaintiffs allege that Galena held a Board meeting that same day. At that time, Galena was in a trading “blackout” for insiders. This insider • trading “blackout” was in place because Galena insiders had received Galena’s preliminary earnings report and thus could not trade until the final earnings report was publicly disclosed. The minutes from the January 16, 2014 Board meeting reflect that after discussion, the Board lifted the trading blackout. The testimony of the Board members to Galena’s Special Committee investigating the alleged wrongdoing, however, was “inconsistent” with there being such a discussion and vote that day during the Board meeting. The Special Committee concluded in its report that if the vote had occurred, it appeared solely designed to allow insiders to immediately sell their Galena stock.
Plaintiffs also allege that Galena’s Special Committee determined that Ahn had violated company policy, may have breached his fiduciary duties, likely violated securities laws, and lied to the Special Committee. Ahn was then terminated for cause after his misconduct came to light, although he falsely claimed that he resigned.
Plaintiffs also incorporate by reference emails to DreamTeam in which Ahn requests that he be sent copies of published articles. Plaintiffs further allege that either Ahn or Bernarda, both of whom were copied on the emails attaching draft articles, approved all. of the articles drafted by DreamTeam before those articles could be published, Plaintiffs also allege that DreamTeam stated in an email to. Mr. Pearson that Galena was slow to approve articles and that DreamTeam “can’t make [Galena] approve when I say, it’s up to them unfortunately.” CAC ¶ 148.
. These numerpus particularized factual allegations relating to Ahn’s knowledge and conduct support -a strong inference that Ahn knew or was, at a .minimum, deliberately or. consciously reckless as to the truth, or falsity of the fact, that Lidingo and DreamTeam were using illegitimate means to boost Galena’s stock price and that the promotional campaign violated the securities laws. Although the Consolidated Complaint does not identify specifically which articles were approved by Ahn and specifically which were approved by. Ber-narda, the email exhibits to the Special Committee Report, incorporated by reference, show that the articles were sent to both Ahn and.Bernarda at the same time and knowledge of their contents can be imputed to both of them, regardless of who made the specific approval on any given article. Ahn approved drafts that did not contain the required paid promotion disclaimer and was later- provided copies of final, published versions that also did not contain the required paid promotion disclaimer.
Additionally, Ahn’s alleged attempts to hide that he renewed Lidingo’s contract and awarded stock options to Lidingo and his responses and attempts to cover up the specifics of the paid promotional campaign and his personal sale of stock also support a strong inference of scienter. See, e.g., Nathanson v. Polycom, Inc., 87 F.Supp.3d 966, 979-80, 2015 WL 1517777, at *9 (N.D.Cal.2015) (noting that the defendant CEO’s attempts to hide his conduct was evidence of scienter); In re Nature’s Sunshine Prods. Sec. Litig., 486 F.Supp.2d 1301, 1310 (D.Utah 2007) (“Evidence that a defendant has taken steps to cover-up [sic] a misdeed is strong proof of scienter.”). Plaintiffs’ allegations also show that Ahn was involved in the attempted cover-up of Galena’s relationship with DreamTeam and Lidingo, further supporting Ahn’s scienter. Immediately after the alleged promotional scheme came to light, Ahn terminated DreamTeam and then publicly stated he terminated DreamTeam for “performance reasons.” Ahn als'o terminated Lidingo. DreamTeam then attempted to remove all evidence of its connection with Galena, and Ahn was one of Galena’s primary contact persons- for DreamTeam and was Galena’s CEO. Thus, it is a reasonable inference that Ahn was aware of this alleged cover-up. Ahn also allegedly lied to a reporter, stating that Galena did not approve any of the articles drafted by DreamTeam writers and that Ahn was not aware that the Seeking Alpha articles were the result of the DreamTeam campaign, even though emails sent to Ahn show otherwise.
Further, the fact that Ahn was terminated for cause, or even if he resigned (as stated by Ahn), after the conduct came to light is evidence supporting an inference of scienter. See Cement & Concrete Workers Dist. Council Pension Fund v. Hewlett Packard Co., 964 F.Supp.2d 1128, 1138 (N.D.Cal.2013) (noting that the fact that a defendant resigns after alleged misconduct is revealed “provides minimal, non-disposi-tive supporting evidence of scienter” (quotation marks omitted)).
Finally, Ahn’s insider stock sales support a strong inference of scienter. See Tellabs, 651 U.S. at 325, 127 S.Ct. 2499 (noting-that “personal financial gain may weigh heavily in favor of a scienter inference”). “[I]nsider trading is suspicious only when it is dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed inside information.” Zucco Partners, 552 F.3d at 1005. (quotation marks omitted). Three factors that courts should consider “to determine whether stock sales raise a strong inference of deliberate recklessness are: ‘(1) the .amount and percentage of shares sold by insiders; (2) the timing.of the sales; and (3) whether the sales were consistent with the insider’s prior trading history.’ ” Id. (quoting In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir.1999)).
Here, Plaintiffs have alleged facts sufficient to show that Ahn’s stock sales support a strong inference of scienter. On January 27, 2014, Ahn sold approximately 87 percent of his personal holdings of Galena stock and received proceeds of approximately $3.8 million. These sales were not made pursuant to a pre-arranged Rule 10b5-l trading plan, and Ahn had not sold any Galena stock on the open market in the previous four years. Ahn thus received millions of dollars selling the large majority of his personal Galena shares in a sale that was dramatically out of line with his prior trading practices. Further, the sales were timed to maximize the price increase that had resulted from the paid promotional campaign, which was material, nonpublic information. Galena’s stock price had been increasing for months, but had just started to decrease after other insiders began selling large amounts of their personal stock. Although Ahn, unlike some of the other Defendants, missed selling at what turned out to be the highest price (approximately $7), he still sold while the promotional campaign was ongoing and undisclosed and the price was allegedly still inflated (approximately $5).
Ahn argues that the more compelling inference to be drawn from the facts alleged in the Consolidated Complaint is that he hired multiple investor and public relations firms, he had no reason to believe those firms were paying authors and not disclosing that fact, he reviewed articles to ensure their factual accuracy regarding Galena’s business, and he sold his stock to diversify his investment portfolio. The Court finds that the inference of scienter alleged by Plaintiffs are “as cogent or compelling as a plausible alternative inference” and, thus, that Ahn’s scienter has been adequately alleged. See Zucco Partners, 552 F.3d at 1007.
b. Bernarda
Similar to the allegations made against Ahn, Plaintiffs allege that Bernar-da corresponded extensively with Dream-Team and Lidingo; reviewed, edited, and approved the articles; knew that the articles were part of the paid promotional scheme; admitted to the Special Committee that she knew the articles were part of the paid promotional campaign; received copies of the published articles; and knew the articles did not disclose their paid connection to Galena.
Plaintiffs also allege that either Ahn or Bernarda, both of whom were copied on the emails attaching draft articles, approved certain articles drafted by Dream-Team before those articles could be published. As with the allegations against Ahn, the fact that the Consolidated Complaint does not identify which articles were approved by Ahn and which were approved by Bernarda is not fatal because the email exhibits show that articles were sent to both Ahn and Bernarda at the same time and knowledge of the articles can be imputed to both of them.
Unique to Bernarda, Plaintiffs allege that on December 12, 2013, Tiberend, the “legitimate” public relations firm retained by Galena, warned Bernarda that hiring an investment relations firm that engages in “pay-for-play” often “border[s] on fraud.” CAC ¶ 177. Tiberend cautioned that these firms “are asking for fees but not disclosing that the resulting article was paid for by the company. They generally hide this connection (you pay CSIR Group; they pay a blogger), but I think this will eventually get noticed by regulators and trouble could ensue.” Id. On December 16, 2013, Tiberend forwarded such an article, written by Defendant Thomas Meyer, to Ber-narda. Bernarda claimed that she did not know Meyer, even though she had approved an article written by Meyer two weeks earlier, on December 3, 2013. Additionally, as alleged by Plaintiffs, either Bernarda or Ahn had approved the very article forwarded by Tiberend. Further, as discussed above, Bernarda had originally warned Ahn about the potential regulatory scrutiny that may arise from hiring DreamTeam. Bernarda stated that she wanted to hire Tiberend, who “treats all authors like ‘journalists.’” These allegations support an inference that Bernarda knew that DreamTeam’s promotional campaign was improper.
Plaintiffs also allege that on November 26, 2013, DreamTeam sent to Bernarda a list of all the articles it had published on Seeking Alpha, including 18 articles with a link to each article. Each of those articles was subject to the Seeking Alpha disclaimer that it was not a paid article. Moreover, this email contained the alias of the purported authors with links to their allegedly fraudulent profile pages, which did not disclose the author’s affiliation with DreamTeam.
Plaintiffs’ allegations are sufficient to support a strong inference of scienter that Bernarda knew or was reckless with the truth about the fact that DreamTeam was paying for promotional articles and other materials to be published without disclosing those promotional materials had been paid for by Galena. As alleged by Plaintiffs, Bernarda approved draft articles that did not contain the required paid promotion disclaimer and received copies of published articles that did not contain the required paid promotion disclaimer. She knew these articles were part of a paid promotion. She knew or suspected DreamTeám’s campaign was improper. She also falsely denied knowing Meyer when Tiberend forwarded her the article he had written.
Plaintiffs do not, however, allege with particularity Bernarda’s scienter with regard to Lidingo during the relevant time period. The only allegations regarding Bernarda’s knowledge of Lidingo’s relationship with Galena during-the relevant time period are general, conclusory allegations that do not contain the required level of particularity. The specific allegations, including those incorporating by reference the Special Committee Report and its exhibits, relate to Galena’s relationship with Lidingo before the relevant time period. Unlike with Ahn, Plaintiffs offer no particularized allegation that Bernarda knew Galena had an ongoing promotional relationship with Lidingo during the relevant time period. To the contrary, Plaintiffs allege that Bernarda stated that she was told by Ahn that he had not renewed Lidingo’s contract. Thus, Plaintiffs have not sufficiently pled Bernarda’s scienter for Plaintiffs’ claims involving Lidingo’s promotional activities.
c. Dunlap"
The allegations specific to Dunlap in the Consolidated Complaint are that he: (1) signed some of Galena’s SEC filings, which were allegedly false or misleading; (2) drafted a.new insider trading policy in August 2013, shortly after the alleged promotional scheme began, that was less restrictive than the old policy; (3) advised Kriegsman in December 2013 that he should not be selling shares but was aware that Kriegsman intended to sell shares anyway; (4) orchestrated the plan to make numerous small buys to disguise the large insider sales; (5) was included On emails from Lidingo during the relevant time period attaching published articles; (6) was included on emails from Lidingo and Ahn in November 2013 relating to the stock options awarded to Lidingo and the renewed contract with Lindigo; (7) conspired with Ahn to conceal the fact that Ahn had improperly awarded stock options to Lidingo; (8) failed to disclose to the Compensation Committee or Board his knowledge that Ahn had given stock options to Lidingo even though he attended those meétings in November 2013 and January 2014, respectively; and (9) informed Galena insiders in December 2013 that they could not sell Galena stock until March 2014. Plaintiffs do not allege that Dunlap, sold any of his Galena stock.
Considering the Consolidated Complaint as a whole, these factual allegations are not sufficient to show that Dunlap knew or was reckless with the truth about the fact that DreamTeam and Lidingo were causing promotional materials to be published without disclosing that Galena paid them to do so. -Although the allegations are sufficient to show that-Dunlap knew that Galena was in a promotional relationship with Lidingo and that Ahn had improperly awarded stock options to Lidingo, there are no particularized allegations that Dunlap knew that Lidingo was causing promotional publications to be published in a misleading fashion or without the required disclosures. Additionally, although the-allegations are sufficient to show that Dunlap knew directors were selling their stock in violation of Galena’s blackout period, there are no particularized allegations that Dunlap knew or believed these sales were to take advantage of the alleged illicit promotional scheme. The trading blackout period instituted by Dunlap was because of the insiders’ knowledge of Galena’s earnings report, not the promotional campaign.
d. . Kriegsman
Kriegsman has served on Galena’s Board since 2006. He is the chairman of Galena’s Compensation Committee. He is one of the first Galena insiders to sell any shares; He sold 200,000 shares, approximately 32 percent of his holdings, on January 17, 2014. He sold another 250,000 shares three trading days later, on January 22, 2014, representing approximately 59.5 percent of his then-remaining Galena shares. The next day, January .23, 2014, he sold another 150,000, representing’approximately 88 percent of his then-remaining shares. In total, within the span of five trading days, Kriegsman sold approximately 97 percent of his personally-held Galena stock.
As discussed above, suspicious sales by insiders “weigh heavily in favor of a scien-ter'inference.” Tellabs, 551 U.S. at 325, 127 S.Ct. 2499; see also Zucco, 552 F.3d at 1005. Evaluating whether sales are suspicious requires considering the amount and percentage of shares'sold,.-the timing of the sales, and whether the sales are consistent with the insider’s trading history. Zucco, 552 F.3d at 1005. The fact that Kriegsman allegedly sold approximately 97 percent of his personally-held Galena stock within one week when he had not sold any shares for the previous four years, during a time capitalizing on Galena’s artificially-inflated stock price, which had reached its highest value since .2010 the day before Kriegsman began selling his stock, is suspicious. Kriegsman’s stock sales as alleged by Plaintiffs thus weigh heavily in favor of a scienter inference.
Additionally, Plaintiffs allege that Kriegsman was familiar with DreamTeam and how it operated because Kriegsman had hired DreamTeam to promote CytRx, Galena’s former parent company of which Kriegsman was the CEO. CytRx sold more than $74.5 million, of its stock while a DreamTeam client. Kriegsman or his personal assistant at CytRx made changes to articles drafted by undercover 'analyst Mr. Pearson posing as a DreamTeam author. Plaintiffs further allege that CytRx insisted that company management edit and sign off on all articles and that all articles not disclose that the writers were being paid. Kriegsman’s familiarity with DreamTeam and how it operated on behalf of CytRx supports an inference that Kriegsman was familiar with how Dream-Team was operating on behalf of Galena.
Kriegsman began selling his stock on January 17,' 2014, the day after the Galena Board meeting discussed above. Thus, as alleged by Plaintiffs, Kriegsman’s sale was either during a trading blackout period or made immediately after the Board lifted the blackout to allow the insiders to trade at the height of the alleged price inflation, both of which support an inference of scienter.
Plaintiffs further allege that an agenda item at the October 11, 2013 and January 16, 2014 Board meetings was a discussion of Galena’s investor relations and public relations activities, led by Bernarda. At the time, more than 90 percent of Galena’s investor relations expenses were payments to DreamTeam and Lidingo. It is a plausible inference that DreamTeam and Li-dingo were included in the discussion of Galena’s public relations activities.
Plaintiffs also allege that Galena’s Compensation Committee awarded stock options in November 2013, at a time of year when the Company had never before awarded stock options, to take advantage of the promotional scheme. Kriegsman, as chair of the Compensation Committee, was involved in that decision. Further, on December 19, 2013, Kriegsman sought to exercise his options to buy 200,000 shares of Galena and immediately sell- them for a profit. Dunlap advised that Kriegsman could not sell at that time because of the trading blackout period. Kriegsman was “insistent” but ultimately did not sell until approximately one month later, on January 17, 2014.
Considering the totality of the Consolidated Complaint, there are sufficient allegations to support a strong inference of Kriegsman’s scienter with respect to the alleged promotional scheme. Kriegsman’s sale of his Galena stock is highly suspicious. Additionally, his knowledge of DreamTeam through his exposure and both CytRx and Galena, his attempt to exercise his options for an immediate profit during the promotional campaign, and his participation in granting the unusually-timed stock options all demonstrate that the inference of scienter argued by Plaintiffs is as least as compelling as any opposing inference of nonfraudulent intent.
e. Chin, Nisi, Hiilsberg, and Galliker
Defendant Richard Chin has served on Galena’s Board since 2009 and on the Compensation Committee since 2011. He is a co-founder of Kindred- Bios-ciences, Inc. (“Kindred”), a development-stage pet prescription drug company. Plaintiffs allege that Defendant Chin sold 262,500 shares of his Galena stock, representing -100 percent of Chin’s personally-held Galena stock. Chin sold his shares on January 30, 2014 and February 12, 2014, during the narrow time frame when the other Galena insiders were selling off their shares. Plaintiffs allege that Chin had not sold any of his personally-held Galena stock in the previous four years. ' Chin’s dramatically out-of-line stock sales weigh heavily in showing scienter. Additionally, Plaintiffs’ allegation that Chin was familiar with DreamTeam and how it operated because he had hired DreamTeam to promote-the' stock of Kindred, which sold more than $106 million in shares while a DreamTeam client, supports an inference of scienter. Further, as a member of Galena’s Compensation Committee, Chin participated in the unusually-timed award of stock options in November 2013, during the promotional 'campaign, which also supports an inference of scienter.
. Defendant Rudolph Nisi has served on Galena’s Board since 2009 and on the Compensation Committee since 2009. Plaintiffs allege that Nisi sold 450,000 Galena shares, representing 98.6 percent of his personally-held Galena - stock. Nisi sold his shares on January 17, 2014 • and January 29, 2014.. Plaintiffs allege that Nisi had not sold any personally-held Galena stock in the previous four years. Nisi’s dramatically out-of-line stock sales weigh heavily toward an inference of scienter. Further, as a member of Galena’s Compensation Committee, Nisi participated in the unusually-timed award of stock options in November 2013, during the promotional campaign, which also supports an inference of scienter.
Defendant Sanford J. Hillsberg has served on Galena’s Board since 2007. Hillsberg is also the managing partner at the law firm TroyGould, which represents various companies that have employed DreamTeam. Plaintiffs allege that Hills-berg sold 450,000 of his Galena stock, representing 93.3 percent of his personally-held Galena stock. Hillsberg sold his shares on January 17, 2014 and January 30, 2014. Plaintiffs allege that Hillsberg had not sold any personally-held Galena stock in the previous four years. Hills-berg’s dramatically out-of-line stock sales weigh heavily toward an inference of scien-ter. Additionally, giving Plaintiffs the benefit of all reasonable inferences, Hills-berg’s association with TroyGould supports an inference that he is familiar with how DreamTeam works and how it allegedly promoted Galena.
Defendant Stephen S. Galliker has served on Galena’s Board since 2007. Gal-liker is also the Chief Financial Officer of Kindred. Plaintiffs allege that Galliker sold 300,000 shares, representing 96.8 percent of Galliker’s personally-held Galena stock. Galliker sold his shares on February 3, 2014. Plaintiffs allege that Galliker had not sold any personally-held Galena stock in the previous four years. Galliker’s dramatically out-of-line stock sale weighs heavily toward an inference of scienter. Additionally, Plaintiffs’ allegation that Galliker was familiar with DreamTeam and how it operated because he had hired DreamTeam to promote the stock of Kindred further supports an inference of scienter.
As with Kriegsman, all of these directors were at the Board meetings held in October 2013 and January 2014 when Galena’s investor and public relations activities were discussed and, as alleged by Plaintiffs, when the trading blackout was purportedly lifted in the January 2014 Board meeting at the height of Galena’s artificially inflated stock price.
Viewing the Consolidated Complaint as a whole, Plaintiffs’ allegations against these directors are sufficient to support a strong inference of scienter with respect to the alleged promotional scheme. This is primarily because of their insider sales. See No. 84 Employer-Teamster Joint Council Pension Trust Fund v. Am. West Holding Corp., 320 F.3d 920, 939-40 (9th Cir.2003) (finding a strong inference of scienter where insiders sold between 88 and 100 percent of their stock in a three-month time period, when the insiders had not previously sold stock in a long period of time and finding that based on the “the large number and percentages of stocks traded, the timing of the sales, and the prior trading history of each defendant, the stock sales that occurred were clearly ‘calculated to maximize the personal benefit from undisclosed inside information,’” despite the fact that most of the insiders had not themselves made any false or misleading statements (citation omitted)). The additional facts relating to scienter, including discussions of the promotional campaign at Board meetings, participation in the unusually-timed award of stock options, and knowledge of DreamTeam based on interactions through companies other than Galena offer further support of an inference of scienter.
f. Schwartz
Plaintiffs allege that Schwartz sold 100,000 of his Galena stock, representing 19.6 percent of Schwartz’s personally-held Galena stock. Schwartz sold his shares on January 30, 2014. Plaintiffs allege that Schwartz had not sold any personally-held Galena stock in the previous four years. The timing of Schwartz’s sale of his personally-held Galena stock and the fact that the sales were out of line with his prior trading practice may support an inference of scienter. The amount and percentage of shares Schwartz sold, however, do not support an inference of scienter, as larger percentages are usually required. See, e.g., Am. West, 320 F.3d at 939-40 (finding stock sales of between 88 and 100 percent create a strong inference of scien-ter); In re Silicon Graphics Sec. Litig., 183 F.3d 970, 987 (9th Cir.1999) (finding that 43.6 percent and 75.3 percent are “somewhat suspicious” while percentages less than 10 were not suspicious). Thus, Schwartz’s stock sales are not sufficiently “suspicious” and do not, by themselves, support an inference of scienter. The only other allegation relating to Schwartz is that he attended the Galena Board meetings at which the promotional campaign was discussed. Although this is evidence from which some inference of scienter can be inferred, it is not sufficient to show Schwartz had the requisite scienter. Thus, reviewing the Consolidated Complaint as a whole, there are insufficient allegations to support a strong inference of scienter by Schwartz.
g. Galena
“[C]orporate scienter relies heavily on the awareness of the directors and officers.” Glazer Capital Mgmt., LP v. Magistri, 549 F.3d 736, 744 (9th Cir.2008) (quotation marks and citation omitted). The Court has already found that Plaintiffs have adequately alleged the scienter of Ahn and Bernarda, who are officers of Galena, and the Selling Defendants except Schwartz, who are directors of Galena. Them knowledge can be imputed to Galena. Thus, the scienter of Galena'has been adequately alleged.
h. Michael McCarthy
Most of Plaintiffs’ allegations relating to DreamTeam either impermissibly combine the DreamTeam Defendants and the Lidingo Defendants together or generically reference “DreamTeam” without specifically identifying the involvement or knowledge of McCarthy. Plaintiffs do, however, make some allegations specific to McCarthy. Plaintiffs allege that McCarthy was the “head” of DreamTeam throughout the relevant time period, that he corresponded extensively with Ahn and Bernarda, that McCarthy told' an undercover analyst that DreamTeam had a team that monitored and posted on message boards, that McCarthy measured Dream-Team’s success by Galena’s stock price, that McCarthy worked closely with Meyer, and that McCarthy spoke,with Meyer regarding articles that were' waiting for Galena’s approval.
Plaintiffs also specifically incorporate by reference into the Consolidated Complaint several of the Special Committee Report exhibits that relate to McCarthy. One exhibit is the November 26, 2013 email from McCarthy to Bernarda attaching links to 18 Seeking Alpha articles that had been published “since we [DreamTeam] started,” none of which contained the required paid promotion disclosure. This email also provided links to the purported biographies of the authors using aliases in the articles, including the allegedly false credentials claimed by the DreamTeam-affiliated aliases and the fact that the biographies did not disclose the authors’ paid relationship with DreamTeam. Another exhibit specifically incorporated is an email dated February 4, 2014, from McCarthy to Ahn and Bernarda forwarding draft articles for approval. Another is the December 3, 2013 email from Bernarda to McCarthy, among others, approving a draft article, with revisions. The draft articles sent by McCarthy for approval did not contain the required paid promotion disclaimer.
Moreover, the Court is instructed to consider all facts alleged in the Consolidated Complaint. Tellabs, 551 U.S. at 322-23, 127 S.Ct. 2499; Zucco, 552 F.3d at 991. Plaintiffs allege other facts relating to DreamTeam of which it can reasonably be inferred that McCarthy, as. the managing member of DreamTeam, was aware. Plaintiffs allege that DreamTeam’s purported business offices are an empty store front and that DreamTeam charges significantly more than market value for its services. These allegations support an inference that DreamTeam was not engaging in a legitimate business with respect to its work for Galena.
Plaintiffs also allege that DreamTeam’s marketing materials brag about how DreamTeam writers post articles on Seeking Alpha, resulting in more than 6,500 views for a single article. Seeking Alpha, however, generally does not permit paid articles and requires an affirmative statement that articles posted are not the pr'od-uct of a paid transaction. If an article is a paid promotion, it must affirmatively state as much.
Plaintiffs further allege that in December 2012 and January 2013, DreamTeam caused five articles to be published on Seeking Alpha, all of whom were written by the same author using different Dream-Team aliases. Seeking Alpha discovered they were written by the same person and removed the articles. After that discovery, those aliases stopped being used by DreamTeam.
Plaintiffs also allege that DreamTeam attempted to cover up its relationship with Galena after the alleged scheme began being reported in the press. Plaintiffs allege that DreamTeam deleted articles, blogs,' comments, Twitter feeds, and the compensation disclosure noting the $50,000 payment made by Galena.
These allegations, taken collectively, sufficiently support a strong inference that McCarthy knew that DreamTeam was paying authors to use multiple aliases and false credentials to write articles touting Galena without disclosing that the articles were part of a paid promotion. The allegations that McCarthy forwarded both draft and final articles, all of which failed to disclose the paid relationship, show that McCarthy was aware that the articles did not contain the required disclosure. Further, Plaintiffs’ allegations support that McCarthy knew that the authors it was paying were using aliases and false biographies. It can also be reasonably inferred from Plaintiffs’ allegations that McCarthy knew this was inappropriate because. DreamTeam allegedly charges significantly higher rates for its , services, Seeking Alpha had - previously removed Dream-Team articles for just this reason, and DreamTeam attempted to cover up its relationship with Galena. Plaintiffs’ allegations also support an inference that McCarthy was part of a scheme artificially to inflate Galena’s stock price. Plaintiffs,' however, do not sufficiently allege McCarthy’s scienter with respect to the alleged scheme or misrepresentations arising out of Galena’s relationship with Lidingo.
i.Thomas Meyer
Plaintiffs allege that Meyer was affiliated with DreamTeam, stated to an undercover analyst that Meyer worked for DreamTeam, stated that he worked closely with McCarthy, published articles touting Galena under his own name, published articles touting Galena using several aliases with false credentials, recruited other authors to write articles touting Galena and CytRx for money, and told an undercover analyst that the conditions for writing articles for DreamTeam included not disclosing that the article was paid for and not publishing without the company’s approval. These allegations are sufficient to support a strong inference of Meyer’s scienter that DreamTeam was paying authors to tout Galena without disclosing the paid promotional relationship. Plaintiffs, however, do not sufficiently allege Meyer’s scienter with respect to Galena's relationship with Lidingo.
j. DreamTeam
The DreamTeam Defendants-argue that because Plaintiffs do not adequately plead McCarthy’s scienter, Plaintiffs fail adequately to ■ plead DreamTeam’s scienter. Plaintiffs respond that they adequately plead McCar