Following years of litigation, extensive motion practice, numerous settlements, and a nearly two-week jury trial in the Southern District of New York, a federal jury returned a complete defense verdict for the two remaining defendants in a landmark securities case in which the plaintiff sought more than $500 million in alleged short-swing profits. The litigation involved eight defendants and presented the first Section 16(b) group claim ever tried to a jury. The plaintiff alleged that investors participating in a 2020 PIPE financing transaction involving Kartoon Studios had coordinated their activities in a manner that rendered them a statutory “group” under the federal securities laws and therefore subject to disgorgement liability under Section 16(b) of the Securities Exchange Act. After approximately five hours of deliberation, the jury rejected those claims and found that the remaining defendants, Empery Asset Management and Brio Capital, did not constitute a group under Section 16(b), resulting in a complete defense victory. The verdict represented a significant outcome in a closely watched case with potentially far-reaching implications for PIPE transactions, beneficial ownership determinations, and investor-group liability under the securities laws.
DOAR supported six of the eight defendants during the pretrial phase of the litigation. Our team conducted a two-day mock trial to evaluate competing case themes, assess juror reactions to complex securities law concepts, and test how jurors viewed communications among investors that the plaintiff contended demonstrated coordinated conduct. DOAR also provided graphics to help counsel develop and communicate key defenses in a case involving highly technical securities law issues. Following pretrial settlements by six defendants, DOAR continued its support of the remaining two defendants, Empery Asset Management and Brio Capital. Working alongside counsel from Freshfields and Ellenoff Grossman & Schole, respectively, our team provided jury selection, witness preparation, trial strategy consulting, graphics consulting and design, and courtroom evidence presentation services through the successful defense verdict.
