backOn February 5, 2025, Magistrate Judge Laura Hatcher of the U.S. District Court for the District of Delaware recommended dismissal of a putative securities class action against BDO USA and several individual defendants relating to a private investment in a public entity, or “PIPE,” offering conducted in connection with a SPAC merger. The investor plaintiffs alleged that the financial statements for the target company, audited by BDO and incorporated into the proxy statement for the transaction, were materially false and misleading because of mischaracterizations of certain equity transactions—an issue that the SEC later investigated and that led BDO to withdraw as the post-merger company’s auditor. In their complaint, the plaintiffs alleged that BDO’s clean audit opinion was false, and violated Section 10(b), because the firm would have discovered the alleged misclassifications “but for conducting either no audit or a sham audit.”
The court determined that BDO’s audit opinion was a statement of opinion under the Supreme Court’s decision in Omnicare—because the opinion was labeled as one. As such, BDO’s audit opinion could not be the basis of a securities claim unless it fell within one of the three Omnicare-recognized exceptions. The court held that no exception applied. First, the court found that plaintiffs did not plead facts sufficient to show that BDO did not believe its audit opinion. Second, the court found that the language in BDO’s audit opinion that the audit was “PCAOB-compliant” was not an objectively verifiable “embedded statement of fact.” The court added that “merely stating that a PCAOB compliant audit was conducted does not mean that an audit contains an embedded and verifiable statement of fact.” Finally, the court found that simply stating an audit was conducted pursuant to the PCAOB is not an actionable omission.
Separately, the court recommended that claims against the individual defendants be dismissed because the plaintiffs failed either to show that the defendants were “makers” of a false statement or that the defendants acted with scienter.
The case is Levy v. Luo, No. 23-cv-00653 (D. Del. Feb. 7, 2025). Plaintiffs are represented by Friedlander & Gorris. BDO is represented by McDermott Will & Emery. The other defendants are represented by Paul, Weiss, Rifkind, Wharton & Garrison; Barnes & Thornburg; Berger McDermott; and Young, Conaway, Stargatt & Taylor. A copy of the report and recommendation is available here.