A U.S. district court dismissed the lawsuit accusing TV ad company Spot Runner of committing a “pump and dump” scheme.
WPP, one of the world’s largest advertising agencies, filed suit against Spot Runner’s executives in April, saying that the founders committed fraud by selling large quantities of the company’s shares without disclosing the sales to investors. The advertising giant alleged that Spot Runner’s founders aggressively promoted WPP’s $10 million investment in it to gain new investors. WPP was seeking at least $11.5 million in damages.
U.S. district judge Percy Anderson of the Central District of California dismissed the suit, saying that WPP misunderstood statements from Spot Runner’s general counsel Peter Huie. In May 2007, when Spot Runner was issuing new stock, WPP tried to ask Huie whether the company’s shareholders were selling their shares. Huie answered: “This offering does not involve the sale of any existing shares. It is an entirely new issuance by the Company,” which was literally true at the time. WPP went ahead and bought $1.7 million worth of shares based on his reply.
The judge said that while WPP may have misread the statement, it wasn’t enough to constitute fraud or active deception. WPP has until Oct. 12 to respond with an amended complaint.
Update: WPP plans to appeal and have its case reinstated.
“While we are disappointed in the decision of the Federal District Court with respect to our securities fraud claim claims against Spot Runner Inc. and the other named defendants, we continue to believe strongly in the merits of those claims as well as the other state law claims that the Court did not pass upon, and we remain committed to pursuing all of our legal remedies. In rendering its decision, the Court rejected important defenses offered by the named defendants and granted us ample opportunity to replead our securities fraud claims. We intend to take full advantage of this opportunity to replead.”
The dismissal may not save Spot Runner from turbulence: the company has gone through three rounds of layoffs lately, letting go of more than 200 employees. It has raised a total of $111 million from WPP, UK media group Daily Mail, Grupo Televisa, hedge fund Legg Mason Capital Management, French luxury group Groupe Arnault/LVMH, Allen & Company, Battery Ventures, Capital Research and Management, CBS, Index Ventures, The Interpublic Group and Tudor Investment Corporation.