FitBit, Inc. Securities Litigation alleges §11 and 10b-5 claims arising from Fitbit’s misrepresentations that its proprietary heart-rate tracking technology, PurePulse, was “highly accurate,” and could “automatically and continuously track heart rate.”
The complaint alleges that the truth was revealed by the filing of a consumer class action against Fitbit alleging that its devices were, in fact, highly inaccurate and did not properly track heart rates. The stock fell about 5% after the lawsuit, and the first securities class action was filed.
The most notable part of the decision is loss causation. Defendants argued that the filing of a consumer class action is insufficient to trigger loss causation under Loos, because it is similar to the announcement of a government investigation and standing alone, reveals only the possibility of fraud. We countered that the later-filed expert report in the consumer case, as well as news reports, confirmed the allegations, and that these disclosures, taken together, were sufficient under Lloyd. The defendants argued that the expert report should be highly discounted because the expert was testifying for the consumer plaintiffs. The court agreed with us and upheld the loss causation allegations.
Actionability of statements -
The court rejected the defendants’ argument that statements about “high accuracy” are inactionable because they are mere puffery and do not quantify, with mathematical prevision, exactly how accurate the devices are.
The court found that we sufficiently alleged scienter based on i) statements of two confidential witnesses who claim they reported the inaccuracies in Fitbit’s technology to the Company’s Chief Operations Officer, who was not named as a defendant, but who is alleged that have met with the Defendants on a weekly basis; ii) the importance of the product to the Company’s revenues; iii) defendants’ motivation to raise funds in their IPO and iv) insider sales.
Congratulations to Associate Aatif Iqbal for his hard work in preparing a meticulously detailed Amended Complaint and his assistance on the briefing!