Simpson Thacher represented Velocity Financial (“Velocity”), a real estate finance company, certain of its officers and directors (together with Velocity, the “Velocity Defendants”), and its private equity sponsor and controlling shareholder Snow Phipps Group, LLC (“Snow Phipps”) in successfully obtaining the dismissal of a putative class action lawsuit against the Velocity Defendants, Snow Phipps, and the underwriters of its IPO on January 25, 2020. This is the first decision on a motion to dismiss in a securities class action involving allegations related to COVID-19 (according to the listed cases on Stanford University’s Securities Class Action Clearinghouse).
In July 2020, a Velocity shareholder filed a lawsuit in the Central District of California under Sections 11 and 15 of the Securities Act. In November 2020, the shareholder filed a first amended complaint which alleged that Velocity made a misrepresentation or omission of material fact in its registration statement by failing to disclose the impact of the coronavirus pandemic on the company’s business and real estate market; mischaracterizing the risk of its underwriting practices; and failing to inform investors about its rising portfolio of nonperforming loans.
In dismissing the action, the court held that: a securities claim could not be based on optimistic market projections that failed to predict a global pandemic; Defendants’ statements regarding Velocity’s underwriting practice were nonactionable statements of corporate optimism; and Plaintiff did not plausibly allege that Defendants hid expected increases in nonperforming loans.
Plaintiff also alleged that Defendants failed to meet their disclosure obligations under Items 303 and 105 of SEC Regulation S-K. The court rejected this argument, holding Plaintiff did not allege that Defendants would or could have known the extent of the coronavirus pandemic, and Defendants sufficiently disclosed information about nonperforming loans.
The team was recognized as a “Litigator of the Week” finalist by the American Lawyer Litigation Daily. The litigation has been covered by publications including the American Lawyer Litigation Daily, Reuters, Bloomberg Law and D&O Diary (subscriptions may be required).
The Simpson Thacher team included James Kreissman, Stephen Blake, Jordan Lamothe and Regina Wang.