VANCOUVER, British ColumbiaA consolidated proposed class-action lawsuit filed in New York against GLG Life Tech Corp., the stevia extract supplier, and its top executives, has been dismissed.
The complaint had alleged violations of federal securities laws.
Central to the lawsuit was whether GLG had disclosed a declining relationship with its biggest customer, Cargill, Inc.
In 2008, GLG had announced a Strategic Alliance and Supply Agreement (SASA) with Cargill that noted GLG would function as Cargill's exclusive Chinese supplier of stevia extract. The pact also stated Cargill would purchase at least 80% of its global stevia extract requirements from GLG for the first five years.
In February 2011, prior to a securities offering, GLG forecast "that a significant portion of our revenues over the next several years will continue to be derived from sales to Cargill pursuant to the SASA." By March 31, 2011, plaintiffs alleged, GLG "repeatedly misled investors by failing to disclose the true nature of the current status and future prospects with Cargill".
The company was accused of misleading the market about its relationship with Cargill through a Securities and Exchange Commission filing and statements from its executives, CEO Luke Zhang and president Brian Meadows.
In a Jan. 31 order that was electronically filed today, U.S. District Judge Katherine Forrest found that plaintiffs failed to allege that GLG "had a plausible motive to defraud investors" because the company was alleged to have misled the market only after it completed an offering of its shares.
"Moreover, plaintiffs have failed to set forth any possible motive on the part of the defendantsthey did not allege, for example, that defendants were attempting to engage in insider trading," the judge added, noting that Zhang actually purchased shares in the company during the relevant time period.
Forrest also noted that plaintiffs failed to "sufficiently allege that defendants knew Cargill had terminated its relationship with GLG at any point during the proposed class period."
Further, the judge found plaintiffs failed to allege that GLG was reckless "because plaintiffs' own pleadings make clear that there was substantial information in the market that suggested" the deteriorating relationship between Cargill and GLG.
A March 31, 2011 SEC filing on which plaintiffs relied disclosed that Cargill only comprised 47% of GLG's total revenues in 2010, down from 90% in the prior year. In that same filing, GLG revealed that it anticipated further declines in 2011.
Even if GLG and its executives "were overly optimistic in expressing hope that Cargill would purchase stevia extract from GLG in 2012, this alone does not rise to the level of recklessness required," Forrest wrote. "Indeed, it just as easily could have been the case that defendants in fact thought Cargill would make purchases in 2012 as not."
Added the judge: "This fact, combined with the plain language in the SASA that the agreement was subject to periodic renegotiation (i.e., the market was on notice from the outset that the SASA was subject to change), suggests that the market knew or should have known that regardless of what defendants hoped would happen in 2012, the purchases by Cargill for 2012 could not actually be secured until 2012."