Facts

Ali Alavi and A Legacy Foundation brought a class action against Genius Brands International, Inc., a media company focused on cartoons for children; Andy Heyward, the founder and Chief Executive Officer of Genius; and Robert Denton, the Chief Financial Officer of Genius. The class included all persons and entities that purchased or otherwise acquired Genius securities during the class period and who were damaged thereby.

PLAINTIFFS' CONTENTIONS: Plaintiffs contended that defendants engaged in a scheme to artificially inflate the company's stock price; heavily marketed Genius stock to retail investors through several misleading tactics to entice investment; and, unbeknownst to any Genius investor, engaged a third-party stock promotion company called PennyStocks.com to begin issuing favorable reports about the company. Plaintiffs alleged that Genius's March 11 Form 8-K, March 30 Form 10- K, and May 17 Form 10-Q were false or misleading because Genius failed to disclose that it had engaged PennyStocks to promote the company's stock price. Plaintiffs also contended that the statements Genius made publicly about Genius' resilience to COVID-19 were contradicted by the statements it made in public filings. Plaintiffs claimed that Genius publicly disclosed that the COVID-19 outbreak "could have a significant adverse impact on our business, which could be material...the Company's management cannot at this point estimate the impact of the outbreak on its business." Plaintiffs argued that this statement was contradicted by a June 8 Shareholder Letter in which Genius disclosed that it did "not anticipate being impacted by COVID-19" and believed the company would "see robust and accelerated revenue growth coming forth in this arena for the foreseeable future."

DEFENDANTS' CONTENTIONS: Defendants denied all contentions. Defendants contended that plaintiffs failed to state a claim for scheme liability because plaintiffs had not alleged any deceptive or manipulative act. Defendants argued that the COVID-19 Statements were forward-looking and therefore immaterial under the Private Securities Litigation Reform Act's safe harbor. Defendants also argued that plaintiffs did not adequately plead loss causation.

Result

The court granted defendants' motion to dismiss plaintiffs' second amended complaint and dismissed the action with prejudice.