District courts within the Second, Third, Fourth, Sixth, and Tenth Circuits hold that general allegations of standing are sufficient. In other words, “to establish standing under [Section 11] at the motion to dismiss stage, Plaintiffs need only assert that they purchased shares ‘issued pursuant to, or traceable to the public offerings.’” In re BioScrip, Inc. Sec. Litig., 95 F. Supp. 3d 711, 746 (S.D.N.Y. 2015); accord In re EveryWare Glob., Inc. Secs. Litig., 175 F. Supp. 3d 837, 866 (S.D. Ohio 2016); In re Enzymotec Secs. Litig., No. 14-5556 (JLL) (MAH), 2015 U.S. Dist. LEXIS 167403, at *69 (D.N.J. Dec. 14, 2015); Northumberland Cty. Ret. Sys. v. Kenworthy, No. CIV-11-520-D, 2013 U.S. Dist. LEXIS 131655, at *19 (W.D. Okla. Sep. 16, 2013); In re Mun. Mortg. & Equity, LLC, 876 F. Supp. 2d 616, 658 (D. Md. 2012); In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326, 373 (S.D.N.Y. 2011).
Courts within the First and Ninth Circuits disagree. In particular, the First Circuit in In re ARIAD Pharms. Securities Litigation, No. 15-1491, 2016 U.S. App. LEXIS 21235 (1st Cir. Nov. 28, 2016), and the Ninth Circuit in In re Century Aluminum Co. Securities Litigation, 729 F.3d 1104 (9th Cir. 2013), hold that a plaintiff must plead concrete facts in support of the conclusion that he or she will be able to successfully “trace” his or her shares to the registration statement underlying the secondary offering. For example, plaintiffs must allege that they purchased shares directly from the issuer in the secondary offering or, if purchased on the open market, show that the shares were purchased on the date of the secondary offering and at the offering price of the secondary offering. Notwithstanding the fact that a secondary offering may have been multiple times larger than the issuer’s initial public offering, general allegations of “tracing” will not suffice.
One aspect of this issue that our courts have yet to address is whether and how a plaintiff can allege standing for a Section 11 claim in the context of an “at-the-market” offering (also known as an ATM offering). While ATM offerings occur after the initial public offering, they differ from most secondary offerings in that they are not conducted on any one day or at any set price. Issuers are able to use ATM offerings to sell shares into the open market in varying amounts and prices when it suits them. Accordingly, when asserting a Section 11 claim over shares sold in an ATM offering, plaintiffs are at an inherent disadvantage when attempting to show standing at the pleading stage, i.e., plaintiffs cannot rely on the common “tracing” indicia such as purchase date or purchase price.
Congress enacted Section 11 and the Securities Act in general to “assure compliance with the disclosure provisions of the [Securities] Act by imposing a stringent standard of liability on the parties who play a direct role in a registered offering.” Herman & MacLean v. Huddleston, 459 U.S. 375, 381-82 (1983). This legislative intent supports a move towards relaxing the pleading requirements for Section 11 claims. Especially in the case of ATM offerings where the facts necessary for meeting the “tracing” requirement are not available prior to discovery, our courts should honor the legislative intent behind Section 11 and decline to dismiss meritorious claims prematurely on procedural grounds.