Judge Jed Rakoff
Based on confidential information about Sigma Designs Inc.—from a source working for Primary Global Research (PGR)—Sonar Capital Management's director Freeman recommended that chief executive and portfolio manager Druker buy Sigma shares for Sonar-affiliated hedge funds. Gordon's putative class suit alleged that Freeman, Druker, Sonar and the funds engaged in insider trading violating §§10(b) and 20(a) of the Securities Exchange Act. The court's Feb. 8, 2013, "bottom-line" order dismissed Gordon's complaint, without prejudice, for failure to state a claim. Discussing the requirements for an insider trading case based on a Dirks theory of liability, it noted that Gordon's complaint inadequately alleged PGR provided a benefit to the Sigma source. Further, although loss causation was pleaded up to Aug. 29, 2007, the putative class included Sigma shareholders who sold shares thereafter. For the period after Aug. 29, 2007, the complaint's non-particularized claim that PGR "repeatedly and consistently communicated with Freeman and Sonar and provided them with material, non-public information about Sigma" lacked the specificity required by Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act.
