Securities Fraud Trial Victory

3/30/2005

Litigation, Securities Litigation, Securities Enforcement, and Investigations + White Collar Defense

MoFo News Item

In a case that made national news, Morrison & Foerster successfully defended Dr. David Gane, the former president and CEO of Dicom Imaging Systems, Inc., against a securities fraud lawsuit filed by the Securities and Exchange Commission in the Southern District Court of Florida. The SEC alleged that our client failed to disclose material information about Dicom's revenue projections in an information package sent to investors, and later made false statements about Dicom's revenue goals. After the six day bench trial, the Court entered judgment in favor of Dr. Gane.

As to the first issue, the Court found that the omission was material, but we proved that Dr. Gane relied on hired professionals and Dicom's corporate counsel in preparing the information package. This evidence negated an inference that Dr. Gane acted with fraudulent intent, and made the SEC's burden to establish "severe recklessness" more difficult. The Court agreed and found that Dr. Gane did not act fraudulently.

As to the second issue, the Court found that Dr. Gane's revenue goal statements were not material because they were not worded as guarantees and so no reasonable investor would have relied on Dr. Gane’s statements in making an investment decision. Further, we showed that Dicom’s stock traded in an efficient market and, therefore, the lack of movement in Dicom's stock price for 11 days after Dr. Gane's statements were broadcast nationally, established that Dr. Gane's statements were not material. Finally, the Court found that Dr. Gane did not act with severe recklessness when he made the revenue goal statements.

The Morrison & Foerster team was led by David Bayless from our San Francisco office.

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