Latino v. <mark>Hut 8 Corp</mark>. — Entry #9
Case: Latino v. <mark>Hut 8 Corp</mark>. nysd · 1:24-cv-01636
filed March 04, 2024
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Docket entry #9 · filed September 12, 2025
Who is involved
- Hut 8 Corp. [tracked: Hut 8]
- Latino
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We follow this case because a company we track is a party: Hut 8 (listed as “Hut 8 Corp.”). We checked the full party list on September 29, 2026 and confirmed the match.
A free copy from the RECAP archive of federal court filings (mirrored at the Internet Archive), retrieved October 30, 2026. Federal court filings are public records.
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Case 1:24-cv-01636-VM Document 9 Filed 09/12/25 Page 1 of 78
9/12/24
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE HUT 8 CORP. SECURITIES
LITIGATION
24 Civ. 904 (VM)
THIS DOCUMENT RELATES TO ALL ACTIONS
DECISION AND ORDER
VICTOR MARRERO, United States District Judge.
Lead plaintiff Abhishek Maheshwari (“Maheshwari” or
“Lead Plaintiff”), individually and on behalf of all others
similarly situated, brings this action against defendants Hut
8 Corp. (“Hut 8” or the “Company”), and Asher Genoot
(“Genoot”), Michael Ho (“Ho”), Jaime Leverton (“Leverton”),
and Shenif Visram (“Visram”, and collectively, the
“Individual Defendants”, and together with Hut 8, the
“Defendants”). Lead Plaintiff alleges violations of the
securities laws. (See “Consolidated Amended Complaint” or
“CAC”, Dkt. No. 39.) Maheshwari claims that Defendants made
materially false and misleading statements in connection with
the November 2023 merger (the “Merger”) of two data mining
companies, which formed Hut 8. Before the Court is Defendants’
motion to dismiss the Consolidated Amended Complaint,
(“Motion to Dismiss” or “MTD”, Dkt. No. 52), pursuant to
Federal Rule of Civil Procedure (“Rule”) 12(b)(6). For the
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reasons below, the Motion to Dismiss is GRANTED in part and
DENIED in part.
I. BACKGROUND 1 0F
Lead Plaintiff brings this securities class action on
behalf of all persons and entities that purchased or otherwise
acquired Hut 8 securities (the “Securities”) between February
13, 2023, and January 18, 2024, inclusive (the “Class
Period”). (See CAC ¶¶ 1, 9, 53.) Lead Plaintiff alleges that
Defendants made materially false and/or misleading statements
in filings with the United States Securities and Exchange
Commission (the “SEC”) surrounding the Merger of Hut 8 Mining
Corp. (“Legacy Hut”) and U.S. Data Mining Group, Inc. d/b/a
US Bitcoin Corp. (“USBTC”), which formed Hut 8. (See id. ¶¶ 3,
6.)
A. THE PARTIES
Lead Plaintiff is an individual who purchased Hut 8
securities during the Class Period. (See id. ¶ 16.)
Hut 8 is a large-scale energy infrastructure company and
one of North America’s largest Bitcoin miners. (See id. ¶ 2.)
Legacy Hut was a Canada-based public company that mined
digital assets and provided high-performance computing
1 Except as otherwise noted, the following background derives from the
CAC. The Court takes all facts alleged therein as true and construes the
justifiable inferences arising therefrom in the light most favorable to
the Lead Plaintiff, as required under the standard set forth in Section
III below.
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infrastructure. (See id. ¶¶ 4, 36.) USBTC was a privately
held Nevada company with a principal place of business in
Miami, Florida, and a builder and strategic operator of
Bitcoin mining sites. (See id. ¶¶ 5, 39.) At the time of the
Merger, USBTC held a fifty percent interest in a digital asset
mining site in King Mountain, Texas (the “King Mountain Joint
Venture” or “King Mountain JV”). (See id. ¶¶ 42-43.)
The Individual Defendants were officers of Hut 8 and
previously were former officers of USBTC or Legacy Hut. At
all relevant times, Genoot was Hut 8’s President, Ho was Hut
8’s Chief Strategy Officer, Leverton was Hut 8’s Chief
Executive Officer (“CEO”), and Visram was Hut 8’s Chief
Financial Officer (“CFO”). (See id. ¶¶ 18-21.) Prior to the
Merger, Genoot was USBTC’s President and a director, Ho was
USBTC’s CEO and Chairman of the Board, Leverton was Legacy
Hut’s CEO, and Visram was Legacy Hut’s CFO. (See id.)
B. THE MERGER
On February 7, 2023, Legacy Hut and USBTC announced that
the companies would combine in an all-stock merger of equals
and become wholly owned subsidiaries of Hut 8 pursuant to a
business combination agreement (the “Business Combination
Agreement”). (See id. ¶ 48.) On February 13, 2023 – the date
the Class Period begins - Hut 8 filed the initial
registration statement on Form S-4 (the “Initial Registration
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Statement”) with the SEC, announcing the proposed Merger. 2 1F
(See id. ¶ 53.) Ho and Leverton submitted their written
consent to being named in the Initial Registration Statement
as prospective directors. (See id. ¶ 54.) Hut 8 filed seven
amendments to the Initial Registration Statement on Forms S-
4/A on April 18 (“First Amendment” or “1st Amend.”), June 12
(“Second Amendment” or “2d Amend.”), July 17 (“Third
Amendment” or “3d Amend.”), August 24 (“Fourth Amendment” or
“4th Amend.”), September 18 (“Fifth Amendment” or “5th
Amend.”), November 6 (“Sixth Amendment” or “6th Amend.”), and
November 7, 2023 (“Seventh Amendment” or “7th Amend.”). 3 (See 2F
id. ¶ 55.) Genoot and Ho signed each Amendment, which
incorporated Ho’s and Leverton’s consent to be named as
prospective directors. (See id. ¶ 55.) On November 9, 2023,
2 See Hut 8 Corp., Registration Statement (Form S-4) (Feb. 13, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923019807/tm23
5928-1_s4.htm.
3 See Hut 8 Corp., Amendment No. 1 (Form S-4) (Apr. 17, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923046342/tm23
5928-4_s4.htm; Hut 8 Corp., Amendment No. 2 (Form S-4) (June 12, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923070494/tm23
5928-8_s4a.htm; Hut 8 Corp., Amendment No. 3 (Form S-4) (July 14, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923081328/tm23
5928-13_s4a.htm; Hut 8 Corp., Amendment No. 4 (Form S-4) (Aug. 24, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923094950/tm23
5928-21_s4a.htm; Hut 8 Corp., Amendment No. 5 (Form S-4) (Sept. 18, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923101668/tm23
5928-27_s4a.htm; Hut 8 Corp., Amendment No. 6 (Form S-4) (Nov. 6, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923114442/tm23
5928-30_s4a.htm; Hut 8 Corp., Amendment No. 7 (Form S-4) (Nov. 7, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923115414/tm23
5928-38_s4a.htm.
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the SEC declared the amended Registration Statement (the
“Amended Registration Statement”) effective. (See id. ¶ 56.)
That day, Hut 8 filed the final prospectus on Form 424(b)(3)
(the “Prospectus”, and with the Initial Registration
Statement and Amendments, the “Registration Statement”),
incorporating the Amended Registration Statement. 4 (See id. 3F
¶ 57.) On November 29, 2023, Hut 8 filed three registration
statements on Form S-8 (the “Forms S-8”), which registered
shares related to employee benefit plans. 5 (See id. ¶ 58.)
4F
Genoot and Ho signed each of the Forms S-8, which incorporated
the Prospectus by reference. (See id. ¶ 58.)
On November 30, 2023, the Merger closed. (See id. ¶ 59.)
On December 19, 2023, Hut 8 filed a 10-Q Form (the “December
2023 10-Q” or “Dec. 2023 10-Q”). 6 (See id. ¶ 66.) On January
5F
18, 2024 – the date the Class Period ends - J Capital
4 See Hut 8 Corp., Prospectus (Form 424(b)(3)) (Nov. 9, 2023),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923116384/tm23
5928-42_424b3.htm.
5 See Hut 8 Corp., Registration Statement (Form S-8) (Nov. 29, 2023)
(registering up to 6,065,682 shares of common stock),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923122084/tm23
31643d1_s8.htm; Hut 8 Corp., Registration Statement (Form S-8) (Nov. 29,
2023) (registering up to 4,490,400 shares of common stock),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923122086/tm23
31643d2_s8.htm; Hut 8 Corp., Registration Statement (Form S-8) (Nov. 29,
2023) (registering up to 1,553,254 shares of common stock),
https://www.sec.gov/Archives/edgar/data/1964789/000110465923122087/tm23
31643d3_s8.htm.
6 See Hut 8 Corp., Quarterly Report (Form 10-K) (Dec. 19, 2023),
https://www.sec.gov/ix?doc=/Archives/edgar/data/0001964789/000110465923
127101/hut-20230930x10q.htm.
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Research published a report (the “Short Seller Report”),
alleging that Hut 8’s stock was overvalued because USBTC would
have declared bankruptcy without the Merger and the King
Mountain JV had experienced persistent energy and internet
problems. 7 6F (See id. ¶¶ 9, 114, 116.) That day, upon
publication of the Short Seller Report, Hut 8’s stock price
fell $2.16, or 23.3 percent, to close at $7.12 per share.
(See id. ¶ 10.) On January 24, 2024, Hut 8 issued a press
release denying the Report’s veracity. (See id. ¶¶ 82-84.)
Lead Plaintiff alleges that Defendants made materially
false and misleading statements and omissions during the
Class Period in the above SEC filings, as detailed below.
C. STATEMENTS REGARDING USBTC’S FINANCIAL CONDITION
First, Lead Plaintiff alleges that Defendants suggested
that USBTC was financially strong enough to sustain
operations for another year when in fact the Merger saved
USBTC from bankruptcy. (See CAC ¶¶ 6, 70.) Lead Plaintiff
alleges that the following statements in Hut 8’s SEC filings
were false or misleading. First, the Initial Registration
Statement and the First, Second, and Third Amendments stated
that USBTC “believes its current cash on hand and subsequent
7 See J Capital Research, “The Coming HUT Pump and Dump” (Jan. 18, 2024),
chrome-
extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.jcapitalresear
ch.com/uploads/2/0/0/3/20032477/2024_01_18_hut.pdf.
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equity and debt financings will be sufficient to meet its
operating and capital requirements for at least the next
twelve months from the date these unaudited condensed
consolidated financial statements are issued” (“Financial
Statement No. 1” or “Fin. Statement No. 1”). (Id. ¶ 61; see
also id. ¶ 64.) Second, the Fourth, Fifth, Sixth, and Seventh
Amendments, and the Prospectus stated that USBTC “believes
its current cash on hand, proceeds from the sales of
cryptocurrency and ongoing operations will be sufficient to
meet its operating and capital requirements for at least the
next twelve months from the date these consolidated financial
statements are issued” (“Financial Statement No. 2” or “Fin.
Statement No. 2”). (Id. ¶ 65.) Third, the December 2023 10-Q
stated that USBTC “believes its current cash on hand, proceeds
from the sale of cryptocurrency, and ongoing operations will
be sufficient to meet its operating and capital requirements
for at least the next twelve months from the date these
unaudited condensed consolidated financial statements are
issued” (“Financial Statement No. 3” or “Fin. Statement
No. 3”). (Id. ¶ 66.) Fourth, the Registration Statement
stated that “USBTC has incurred net losses since its inception
but does not anticipate it will continue to incur net losses
for the foreseeable future” (“Financial Statement No. 4” or
“Fin. Statement No. 4”). (Id. ¶ 67.) Forms S-8 also contained
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Financial Statements Nos. 2 and 4, insofar as Forms S-8
incorporated the Prospectus. (See id. ¶ 68.)
Lead Plaintiff contends that USBTC’s historical
financial statements in the Registration Statement show that
USBTC could not have sustained operations for another year.
(See id. ¶ 70.) Per the Prospectus, USTBC had approximately
$9 million available in net current assets as of June 30,
2023. (See id. ¶ 71.) Also, USBTC’s cash flows showed an
average loss of $36.1 million the fiscal year ending June 30,
2022 (“Fiscal 2022”) and the fiscal year ending June 30, 2023
(“Fiscal 2023”). (See id. ¶ 73.) Hence, Lead Plaintiff
asserts, the $9 million available would have sustained
operations for about four months, not twelve months. (See id.
¶¶ 73-74.)
Moreover, Lead Plaintiff argues that to the extent the
Financial Statements were based on projections, those
projections were overly optimistic. (See id. ¶ 75.) Per the
Prospectus, USBTC’s cash flows used in operations for Fiscal
2023 were approximately negative $29.3 million. As of January
8, 2023, the Prospectus projected that USBTC would have
positive cash flows of about $62.7 million in calendar year
2023. (See id. ¶ 76.) Given that Fiscal 2023 ended on June
30, 2023, USBTC’s cash flows from operations would have needed
to “significantly improve” in the remaining six months of
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2023 “to even come close” to the $62.7 million projection.
(Id. ¶ 77.) Likewise, the Seventh Amendment and the
Prospectus projected that, as of January 28, 2023, USBTC’s
earnings before interest, taxes, depreciation, and
amortization (“EBITDA”) and EBITDA margin for calendar year
2023 would be at least 50 percent higher than what was
achieved in Fiscal 2023. (See id. ¶ 75.)
Further, Lead Plaintiff contends that a confidential
witness (“CW 1”), a data analyst for Hut 8 in the months
before the Merger and thereafter, asserts that Leverton told
the attendees of a Hut 8 retreat held from January 14-17,
2024, that the Merger saved USBTC from bankruptcy. (See id.
¶¶ 81, 93.)
Lead Plaintiff also asserts that Financial Statement
No. 4 failed to disclose required information under Item 303
of SEC Regulation S-K (“Item 303”), which requires
registrants to describe any “known trends” that are
“reasonably likely to have a material favorable or
unfavorable impact on net sales or revenues or income from
continuing operations.” 17 C.F.R. § 229.303(b)(2)(ii).
Accordingly, although Financial Statement No. 4 disclosed
that “USBTC has incurred net losses since its inception,” it
misleadingly stated that USBTC “does not anticipate it will
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continue to incur net losses for the foreseeable future.”
(CAC ¶ 102.)
D. STATEMENTS REGARDING THE KING MOUNTAIN JV
Second, Lead Plaintiff alleges that Defendants failed to
disclose the energy and internet issues that had already
materialized at the King Mountain JV.
Regarding the energy-related issues, CW 1 “had daily
discussions with the Director of Infrastructure before the
Meger” about the “ongoing energy issues” at the King Mountain
JV. (Id. ¶ 93.) Also, CW 1 “saw evidence of the energy issues
in the Hashrate failure and energy usage reports he received.”
(Id. ¶ 96.) Per CW 1, the King Mountain JV had the most
inefficient miners. (See id.) Accordingly, Lead Plaintiff
alleges that the following statements in Hut 8’s Registration
Statement were materially misleading, as they did not
disclose the known energy problems. First, that “[t]he USBTC
team will bring significant leadership in energy orientation,
development, demand response, hedging, grid stabilization
analytics to [Hut 8], which will enhance [Hut 8’s] ability to
better plan around stable and predictable energy usage and
mitigate fluctuating prices across markets” (“King Mountain
Statement No. 1”). (Id. ¶ 88.) Second, that:
The Echo facility at King Mountain is co-located
behind the meter at a wind farm, and at peak wind
generation periods can draw up to 100% of the energy
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the wind project produces to power mining and
hosting; the rest of the time, the energy is
source[d] from [the Electrical Reliability Counsel
of Texas (“ERCOT”) grid] (“King Mountain Statement
No. 2”).
(Id. ¶ 89.)
Third, that “[t]he operation of the grids USBTC relies
on, including the . . . [ERCOT grid] . . . subjects USBTC to
a variety of risks, including the breakdown and failure of
equipment . . . [and] outages affecting information
technology systems” (“King Mountain Statement No. 3”). (Id.
¶ 90.)
Regarding the internet-related issues, according to CW
1, there were often “dips” in the network service and several
outages and network failures during his time with the Company,
which were reported in daily outage reports. (See id. ¶¶ 97-
98.) CW 1 claims that senior management directed data analysts
to conceal the outages’ true cause by characterizing the
miners as overheated and not offline. Hence, at least half of
internet outages were falsely classified as overheating
incidents. (See id. ¶ 99.) Accordingly, Lead Plaintiff
alleges that the following statement in Hut 8’s Registration
Statement was materially misleading, insofar as it did not
disclose the above known internet problems: “USBTC may face
risks of Internet disruptions, which could have an adverse
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effect on the price of Bitcoin” (“King Mountain Statement
No. 4”). (Id. ¶ 92.)
Also, Lead Plaintiff claims the Short Seller Report
corroborated CW 1’s allegations with the following
information. First, King Mountain JV’s largest customer filed
a proof of claim on November 23, 2022, against the entity
from whom USBTC acquired its fifty percent interest in the
site, alleging that the former co-owner failed to energize
thousands of miners and provide an “adequate high-speed
network.” (Id. ¶¶ 117-18.) Second, that customer stated in
its 2023 Annual Report that it experienced significant
production downtime because of “delays in energization at
King Mountain.” (Id. ¶ 119.) Second, the Short Seller Report
alleges that the King Mountain JV uses a “Starlink satellite
network” for internet access, which is “unheard of in the
Bitcoin mining industry” because Starlink is an unreliable
choice for mining at scale. (Id. ¶ 120.)
Additionally, Lead Plaintiff contends that King Mountain
Statement No. 4 failed to disclose required information under
Item 105 of Regulation S-K (“Item 105”), which requires that
under the “Risk Factors” section, the registrant include “a
discussion of the material factors that make an investment in
the registrant or offering speculative or risky” and
“adequately describe[] the risk.” 17 C.R.F. § 229.105(a).
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Thus, King Mountain Statement No. 4’s warning that “USBTC may
face risks of Internet disruptions” was inadequate, insofar
as the disclosure suggested internet disruptions were a
potential risk, rather than a risk that had already
materialized. (CAC ¶¶ 108-09.)
II. PROCEDURAL HISTORY
On February 7, 2024 – approximately three weeks after
the Short Seller Report was published - plaintiff Ryan Mayiras
initiated this class action against Hut 8, Leverton, and
Visram. (See “Mayiras Complaint”, Dkt. No. 1.) On March 4,
2024, plaintiff Mark Latino initiated a parallel class action
against the same defendants. (See “Latino Complaint”, Case
No. 24 Civ. 01636, Dkt. No. 1.) On March 15, 2024, this Court
consolidated the two actions pursuant to Rule 42 because the
Complaints described the same or substantially similar
underlying events arising out of the same or substantially
similar operative facts and asserted the same or
substantially similar claims against the same defendants.
(See “Consolidation Order”, Dkt. No. 9.)
On April 19, 2024, the Court appointed Maheshwari as
Lead Plaintiff pursuant to Section 21D(a)(3)(B)(iii) of the
Private Securities Litigation Reform Act of 1995 (the
“PSLRA”), 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I), finding that
Maheshwari had the largest financial interest in the outcome
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of the action and satisfied the requirements of Rule 23. (See
“Lead Plaintiff Order”, Dkt. No. 34.)
On June 14, 2024, Lead Plaintiff filed the CAC, naming
Hut 8, Ho, Genoot, Leverton, and Visram as Defendants. (See
CAC.) Lead Plaintiff alleged violation of Section 11 of the
Securities Act (“Section 11”), 15 U.S.C. § 77k, as to Hut 8,
Ho, Genoot, and Leverton (“Count I”); violation of Section 15
of the Securities Act (“Section 15”), 15 U.S.C. § 77o, as to
the Individual Defendants (“Count II”); violation of Section
10(b) of the Exchange Act (“Section 10(b)”), 15 U.S.C. § 78j,
and Rule 10b-5 promulgated thereunder, 17 C.F.R § 240.10b-5,
as to all Defendants (“Count III”); and violation of Section
20(a) of the Exchange Act (“Section 20(a)”), 15 U.S.C. § 78t,
as to the Individual Defendants (“Count IV”). (See CAC ¶¶ 154-
90.)
After completion of the pre-motion letter exchange
outlined in this Court’s Individual Practice II.B, Defendants
filed their Motion to Dismiss on December 2, 2024 (see MTD),
supported by a memorandum of law (“Memorandum” or “Mem.”,
Dkt. No. 53) and a declaration of Mary Beth Maloney (“Maloney
Declaration” or “Maloney Decl.”, Dkt. No. 54). On January 16,
2025, Plaintiffs filed a memorandum of law in opposition to
the Motion to Dismiss (“Opposition” or “Opp’n.”, Dkt.
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No. 55). On February 18, 2025, Defendants filed a reply
memorandum of law (“Reply”, Dkt. No. 56).
III. LEGAL STANDARDS
A. RULE 12(b)(6)
“To survive a motion to dismiss [under Rule 12(b)(6)],
a complaint must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim
is plausible if the complaint states “enough fact to raise a
reasonable expectation that discovery will reveal evidence of
illegal conduct” — there is not “a probability requirement at
the pleading stage.” Lynch v. City of New York, 952 F.3d 67,
75 (2d Cir. 2020) (quoting Twombly, 550 U.S. at 556(quotations
omitted)); see Iqbal, 556 U.S. at 678 (“A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”). “In other
words, a complaint should not be dismissed when the factual
allegations sufficiently ‘raise a right to relief above the
speculative level.’” Liboy v. Russ, No. 22 Civ. 10334, 2023
WL 6386889, at *4 (S.D.N.Y. Sept. 29, 2023) (quoting Twombly,
550 U.S. at 555). In reviewing a motion to dismiss under Rule
12(b)(6), the Court must “constru[e] the complaint liberally,
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accepting all factual allegations in the complaint as true,
and drawing all reasonable inferences in the plaintiff’s
favor.” Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir. 2008)
(internal quotation marks omitted).
When presented with a motion to dismiss pursuant to Rule
12(b)(6), the Court may consider documents that are
referenced in the complaint, documents on which the
plaintiffs relied in bringing suit and that are either in the
plaintiffs' possession or about which the plaintiffs knew, or
matters of which judicial notice may be taken. See Chambers
v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002). When
adjudicating a motion to dismiss a securities action based on
alleged misrepresentations, the Court may also take judicial
notice of the contents of “public disclosure documents
required to be filed with the SEC,” as well “related documents
that bear on the adequacy of the disclosure.” Kramer v. Time
Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991).
B. SECURITIES ACT
Section 11 of the Securities Act (“Section 11”)
“impose[s] liability on certain participants in a registered
securities offering” when the registration statements
“contain material misstatements or omissions.” In re Morgan
Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358 (2d Cir.
2010); see 15 U.S.C. § 77k. To state a claim under Section
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11, the plaintiff must allege that: (1) he purchased a
registered security, either directly from the issuer or in
the aftermarket following the offering; (2) the defendant
participated in the offering in a manner sufficient to give
rise to liability under Section 11; and (3) the registration
statement “contained an untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading.” In re Morgan Stanley, 592 F.3d at 359-60 (quoting
15 U.S.C. § 77k(a) (internal quotation marks omitted)).
Section 15 of the Securities Act (“Section 15”) creates
liability for individuals or entities that “control[] any
person liable” under Sections 11 or 12 of the Securities Act.
15 U.S.C. § 77o(a). To state a claim under Section 15, the
plaintiff must allege (1) “a primary violation by a controlled
person” and (2) “control by the defendant of the primary
violator.” In re Refco, Inc. Sec. Litig., 503 F. Supp. 2d
611, 637 (S.D.N.Y. 2007). If the plaintiff has not adequately
alleged a primary violation – i.e. a viable claim under
another provision of the Securities Act – the Section 15 claim
must be dismissed. (See id.)
C. EXCHANGE ACT
Section 10(b) of the Exchange Act (“Section 10(b)”)
provides that “in connection with the purchase or sale of any
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security,” it is unlawful to use “any manipulative or
deceptive device or contrivance in contravention of” SEC
rules and regulations. 15 U.S.C. § 78j(b). Rule 10b-5, in
turn, prohibits making “any untrue statement of a material
fact” or omitting “a material fact necessary in order to make
the statements made . . . not misleading.” 17 C.F.R.
§ 240.10b-5(b). To state a private securities-fraud claim
under Section 10(b) and Rule 10b-5, the plaintiff must plead
“(1) a material misrepresentation or omission by the
defendant; (2) scienter; (3) a connection between the
misrepresentation or omission and the purchase or sale of a
security; (4) reliance upon the misrepresentation or
omission; (5) economic loss; and (6) loss causation.” In Re
Philip Morris Int’l Inc. Sec. Litig., 89 F.4th 408, 417 (2d
Cir. 2023) (quoting Stoneridge Inv. Partners, LLC v. Sci.-
Atlanta, Inc., 552 U.S. 148, 157 (2008) (internal quotation
marks omitted)).
Section 20(a) of the Exchange Act imposes liability on
any “person who . . . controls any person liable” under
Section 10(b). 15 U.S.C. § 78t(a). To state a claim under
Section 20(a), the plaintiff must show “(1) a primary
violation by the controlled person, (2) control of the primary
violator by the defendant, and (3) that the defendant was, in
some meaningful sense, a culpable participant in the
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controlled person’s fraud.” Carpenters Pension Tr. Fund of
St. Louis v. Barclays PLC, 750 F.3d 227, 236 (2d Cir. 2014)
(internal quotation marks omitted). As with Section 15 claims
under the Securities Act, if the plaintiff has not adequately
alleged a primary violation under another provision of the
Exchange Act, the Section 20(a) claim must be dismissed. See
id.
Further, Exchange Act plaintiffs must satisfy the
heightened pleading requirements of Rule 9(b) by “stat[ing]
with particularity the circumstances constituting fraud.”
Fed. R. Civ. P. 9(b). “In short, a plaintiff must set forth
the who, what, when, where and how of the alleged fraud.”
Telenor E. Inv. AS v. Altimo Holdings & Invs. Ltd., 567 F.
Supp. 2d 432, 441–42 (S.D.N.Y. 2008) (internal quotation
marks omitted). “Allegations that are conclusory or
unsupported by factual assertions are insufficient.” ATSI
Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir.
2007).
The PSLRA additionally imposes heightened pleading
standards for plaintiffs alleging securities fraud under the
Exchange Act, instructing that “the complaint shall specify
each statement alleged to have been misleading, the reason or
reasons why the statement is misleading, and, if an allegation
regarding the statement or omission is made on information
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and belief, the complaint shall state with particularity all
facts on which that belief is formed.” 15 U.S.C. § 78u-
4(b)(1). Plaintiffs “must do more than say that the
statements . . . were false and misleading; they must
demonstrate with specificity why and how that is so.” Rombach
v. Chang, 355 F.3d 164, 174 (2d Cir. 2004). Further, the PSLRA
requires plaintiffs to “state with particularity facts giving
rise to a strong inference that the defendant acted with the
required state of mind” (i.e. scienter). 15 U.S.C. § 78u-
4(b)(2)(A); see also ATSI Commc’ns, 493 F.3d at 99. A court
shall grant a motion to dismiss a Section 10(b) claim if these
requirements are not met.
IV. DISCUSSION
Lead Plaintiff brings Counts I and II under Sections 11
and 15 of the Securities Act, respectively (the “Securities
Act Claims”), and Counts III and IV under Section 10(b) and
20(a) of the Exchange Act, respectively (the “Exchange Act
Claims”). (See CAC ¶¶ 154-90.) The CAC brings the Securities
Act Claims as to Financial Statements Nos. 1-2 and 4, and
King Mountain Statements Nos. 1-4, as all are contained in
the Registration Statement. 8 (See CAC ¶¶ 156, 170.) See 15
7F
8 Financial Statement No. 3, contained in the December 2023 10-K, is the
only alleged misstatement not contained in the Registration Statement and
thus is inactionable under Sections 11 or 15 of the Securities Act. See
15 U.S.C. § 77k.
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U.S.C. §§ 77b(a)(8), 77f. The CAC brings the Exchange Act
Claims as to Financial Statements Nos. 1-4 and King Mountain
Statements Nos. 1-4. (See CAC ¶¶ 178, 188.)
Defendants argue that (1) Lead Plaintiff does not have
statutory standing to bring a claim under Section 10(b) of
the Exchange Act; (2) Lead Plaintiff’s Securities Act Claims
are subject to Rule 9(b)’s heightened pleading standard
because those claims sound in fraud; and (3) Lead Plaintiff
has failed to state a claim under the Securities Act or the
Exchange Act because none of the challenged Statements are
materially false or misleading. (See Mem. at 9, 29.)
The Court addresses Section 10(b) standing first. Then,
the Court turns to whether Rule 8(a)’s “short plain statement”
standard or Rule 9(b)’s “particularity” standard applies to
the Securities Act Claims. Next, the Court evaluates whether
Lead Plaintiff alleged any material untrue statements or
omissions before analyzing the remaining elements of the
claims.
A. STANDING UNDER SECTION 10(b)
To sue under Section 10(b) of the Exchange Act,
plaintiffs must have “at least dealt in the security to which
the prospectus, representation, or omission relates.” Blue
Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 747 (1975);
see also Birnbaum v. Newport Steel Corp., 193 F.2d 461, 463
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(2d Cir. 1952). “Under the purchaser-seller rule, standing to
bring a claim under Section 10(b) is limited to purchasers or
sellers of securities about which a misstatement was made.”
Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd., 54 F.4th
82, 84 (2d Cir. 2022). “Stockholders do not have standing to
sue under Section 10(b) and Rule 10b–5 when the company whose
stock they purchased is negatively impacted by the material
misstatement of another company, whose stock they do not
purchase.” Ontario Pub. Serv. Emps. Union Pension Tr. Fund
v. Nortel Networks Corp., 369 F.3d 27, 34 (2d Cir. 2004).
“Section 10(b) standing does not depend on the significance
or directness of the relationship between two companies.
Rather, the question is whether the plaintiff bought or sold
the securities about which the misstatements were made.”
Frutarom, 54 F.4th at 88.
Defendants contend that Lead Plaintiff does not have
statutory standing to challenge Financial Statements Nos. 1-
2 and 4 and King Mountain Statements Nos. 1-4 under Section
10(b) and Rule 10b-5 because (1) those Statements were made
before the Merger when Hut 8 shares were not yet available,
(2) those Statements are about USBTC, and (3) Lead Plaintiff
bought shares in Hut 8, not USBTC. 9 (See Mem. at 29-30; CAC
8F
9Defendants do not dispute that Lead Plaintiff has Section 10(b) standing
to challenge Financial Statement No. 3 because it was made in the December
19, 2023, 10-Q – after the November 30, 2023, Merger and the same day
22
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¶¶ 1, 16.) Hence, the Court must determine whether Lead
Plaintiff “bought or sold the securities about which the
misstatements were made.” Frutarom, 54 F.4th at 88. For the
reasons below, the Court concludes that Lead Plaintiff does
not have Section 10(b) standing to challenge Financial
Statements Nos. 1-2 and 4 or King Mountain Statements Nos. 2-
4, but that Lead Plaintiff has Section 10(b) standing to
challenge King Mountain Statement No. 1.
Defendants rely on Menora Mivtachim Insurance Ltd.
v. Frutarom Industry Ltd., in which purchasers of a post-
acquisition company’s securities sued the target company
under Section 10(b) based on pre-merger statements made by
the target company about itself. See 54 F.4th at 84. The
Second Circuit held that “purchasers of a security of an
acquiring company do not have standing under Section 10(b) to
sue the target company for alleged misstatements the target
company made about itself prior to the merger” because those
misstatements were not “about” the company in which
plaintiffs owned shares. Id. at 88. District courts applying
Frutarom have likewise held that plaintiffs lacked Section
that Lead Plaintiff began purchasing Hut 8 stocks. (See Mem. at 30; CAC
¶¶ 59, 66; Dkt. No. 28-1 (Lead Plaintiff’s Damages Analysis and Holdings);
Dec. 2023 10-Q.) See, e.g., In re CarLotz, Inc. Sec. Litig., No. 21 Civ.
5906, 2024 WL 1348749, at *4-7 (S.D.N.Y. Mar. 29, 2024) (plaintiff lacked
Section 10(b) standing to challenge pre-merger, but not post-merger,
statements).
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10(b) standing to challenge pre-merger statements about a
target company made by the special purpose acquisition
company (“SPAC”) that took the target company public when the
plaintiffs owned securities in and sued the SPAC. See In re
CarLotz, 2024 WL 1348749, at *4, 6 (rejecting plaintiffs’
argument that statements about the target company pertained
to the post-merger entity because the statements were
incorporated into the SPAC’s SEC filings “in respect of the
proposed merger”).
Lead Plaintiff argues that because the Merger was a
merger of equals, not an acquisition like the mergers in
Frutarom or CarLotz, the pre-Merger misstatements about USBTC
are necessarily misstatements about Hut 8. (See Opp’n. at 27-
28.) Further, Lead Plaintiff acquired Hut 8 shares and is
suing Hut 8 (whereas in Frutarom plaintiffs bought shares in
the acquiring company and sued the target subsidiary), and
Hut 8 and the Individual Defendants acting on Hut 8’s behalf
published the misstatements (whereas in Frutarom the target
company made the alleged misstatements about itself). (See
id. at 27-29.) Because the CarLotz plaintiffs owned shares in
and sued the entity that made the alleged misstatements (the
SPAC), Lead Plaintiff argues that CarLotz’s holding goes
beyond Frutarom’s ruling by suggesting that “who made the
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statement is inconsequential to the standing analysis.” (Id.
at 29.)
The parties have not cited any cases, and the Court is
not aware of any, where a court applied Frutarom’s reasoning
to an action where plaintiffs purchased shares in a post-
merger-of-equals entity and challenged pre-merger statements
about a pre-merger entity. Moreover, Lead Plaintiff has not
cited any cases, and the Court is not aware of any, where a
court considered who made the alleged misstatement within
Frutarom’s framework. Indeed, Frutarom reiterated the Supreme
Court’s warning against “an ‘endless case-by-case erosion’ of
the purchaser-seller rule by creating exceptions” and
undertaking a “‘shifting and highly fact-oriented’ inquiry.”
54 F.4th at 86-87 (quoting Blue Chip Stamps, 421 U.S. at 755).
Accordingly, the Court rejects Lead Plaintiff’s argument that
the Court should consider that the Registration Statement
containing the Statements was published by Hut 8 and the
Individual Defendants acting on Hut 8’s behalf. (See Opp’n.
at 28.)
At least one court applying Frutarom has held that
purchasers of a post-acquisition company’s securities had
standing to challenge pre-merger statements when it was
“plausible that some of the pre-merger statements concerned
[the] post-merger [company].” Point12 Diversified Fund, LP
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v. TMC The Metals Co., No. 21 Civ. 5991, 2025 WL 1920340, at
*11 (E.D.N.Y. July 11, 2025). In so holding, the Point12 court
relied upon allegations that the challenged press release was
a joint statement in which defendants “described the
valuation of the ‘combined company;’” stated that the “merger
‘transaction’” included $330 million in funding; and stated
that the post-merger company was “the ultimate answer to [the
SPAC’s] thorough search for meaningful ESG impacts combined
with tremendous financial upside.” Id. The court, conversely,
found that plaintiffs lacked Section 10(b) statutory standing
to challenge pre-merger statements that “plainly concerned”
the target company, which “were about the assets and
expenditures of [the] pre-merger [target company]” and “never
mentioned” the post-merger company.” Id. The court held that
it was irrelevant for the standing analysis that the SPAC
made those statements in its SEC filing, since “[w]hat matters
is that the alleged misstatements were about [the target
company].” Id. (emphasis in original).
Here, the Court finds that Financial Statements Nos. 1-
2 and 4 and King Mountain Statements Nos. 2-4 were about
USBTC, not Hut 8, but that King Mountain Statement No. 1
plausibly concerned Hut 8. See id.
Financial Statements Nos. 1-2 are within the section on
USBTC’s Consolidated Financial Statements and pertain solely
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to USBTC’s past financial performance and USBTC’s “belie[f]”
that it would have enough funding to meet operating and
capital requirements for at least twelve months. (See Initial
Registration Statement at F-7; 1st Amend. at F-7; 2d Amend.
at F-12; 3d Amend. at F-12; 4th Amend. at F-8; 5th Amend. at
F-8; 6th Amend. at F-8; 7th Amend. at F-8; Prospectus at F-
8.) Similarly, Financial Statement No. 4 is within the
section on “Management’s Discussion and Analysis of Financial
Condition and Results of Operations of USBTC” and concerns
only USBTC’s past financial performance and its
“anticipat[ion]” that it would not continue to incur net
losses for the foreseeable future. (Initial Registration
Statement at 158; 1st Amend. at 172; 2d Amend. at 183; 3d
Amend. at 184; 4th Amend. at 182; 5th Amend. at 183; 6th
Amend. at 185; 7th Amend. at 185; Prospectus at 185.)
Likewise, King Mountain Statements Nos. 2-4 concern only
USBTC and not post-merger Hut 8. King Mountain Statement No. 2
appears in the “Information About USBTC” section and touts
King Mountain’s Echo facility’s ability to “draw up to 100%
of the energy” that the neighboring wind farm generates. (See
Initial Registration Statement at 132; 1st Amend. at 141; 2d
Amend. at 151; 3d Amend. at 153; 4th Amend. at 153; 5th Amend.
at 154; 6th Amend. at 155; 7th Amend. at 155; Prospectus at
155.) King Mountain Statements Nos. 3-4 appear in the “Risks
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Relating to USBTC’s Business” section. King Mountain
Statement No. 3 discloses risk factors related to the
electrical grids on which USBTC relies, and King Mountain
Statement No. 4 discloses the risk of internet disruptions at
USBTC. (See Initial Registration Statement at 46, 58; 1st
Amend. at 47, 61; 2d Amend. at 49, 63; 3d Amend. at 49, 63;
4th Amend. at 48, 62; 5th Amend. at 49, 63; 6th Amend. at 49,
64; 7th Amend. at 49, 64; Prospectus at 49, 64.) Therefore,
Lead Plaintiff does not have Section 10(b) statutory standing
to challenge Financial Statements Nos. 1-2 and 4 or King
Mountain Statements Nos. 2-4, as those pre-Merger Statements
are about USBTC.
King Mountain Statement No. 1, however, is within the
section on “Questions and Answers About the Business
Combination,” and specifically answers the question “[w]hy
are the two companies proposing the Business Combination”
under the header “[i]mproving [Hut 8’s] energy expertise and
hedging capabilities.” That Statement discusses the
attributes USBTC “will bring . . . to [Hut 8], which will
enhance [Hut 8’s] ability to better plan around stable and
predictable energy usage and mitigate fluctuating prices
across markets.” (Registration Statement at 1-2.) Therefore,
the Court finds that Lead Plaintiff “bought . . . the
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securities about which [King Mountain Statement No. 1] [was]
made.” Frutarom, 54 F.4th at 88.
In sum, Lead Plaintiff has Section 10(b) statutory
standing to challenge King Mountain Statement No. 1 because
it was about Hut 8. Further, Lead Plaintiff has Section 10(b)
statutory standing to challenge Financial Statement No. 3
because it was made after the Merger. Lead Plaintiff, however,
does not have Section 10(b) statutory standing to challenge
the other Statements because they were about USBTC and made
before the Merger. Accordingly, the Court GRANTS the Motion
to Dismiss Count III as it pertains to Financial Statements
Nos. 1-2 and 4 and King Mountain Statements Nos. 2-4. Because
Lead Plaintiff does not have standing to allege a primary
violation under Section 10(b), the Court also GRANTS the
Motion to Dismiss Count IV as it pertains to Financial
Statements Nos. 1-2 and 4 and King Mountain Statements
Nos. 2-4.
B. APPLICABILITY OF RULE 9(b) TO SECURITIES ACT
CLAIMS
Unlike Exchange Act Section 10(b) claims, Securities Act
Section 11 claims need not allege scienter, and thus need not
sound in fraud. See In re Morgan Stanley, 592 F.3d at 359
(“Issuers are subject to ‘virtually absolute’ liability under
[S]ection 11, while the remaining potential defendants under
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[S]ections 11 and 12(a)(2) [e.g., underwriters and statutory
sellers] may be held liable for mere negligence.”). This rule
obtains because Section 10(b) imposes liability, through Rule
10b-5, for making a material untrue statement or omission,
whereas Section 11 imposes liability when registration
statements contain a material untrue statement or omission.
Compare 17 C.F.R. § 240.10b-5(b), with 15 U.S.C. § 77k.
Lead Plaintiff asserts that the Securities Act Claims
are based on negligence and strict liability, such that the
heightened pleading standard for fraud under Rule 9(b) does
not apply. (See CAC ¶¶ 154, 168; Opp’n. at 6.) See Pappas
v. Qutoutiao Inc., No. 23 Civ. 1233, 2024 WL 4588491, at *1
(2d Cir. Oct. 28, 2024) (“[T]he Rule 8 notice pleading
standard applies where the plaintiff alleges negligent
preparation of the registration statement and prospectus,
rather than fraudulent preparation, . . . or where the
complaint explicitly does not allege fraud.” (internal
quotation marks omitted)). Defendants state, without further
explanation, that the Securities Act Claims must comply with
Rule 9(b) because all Lead Plaintiff’s claims sound in fraud.
(See Mem. at 9.)
A Securities Act plaintiff “cannot avoid the strictures
of Rule 9(b) by the mere expedient of disclaiming that its
claims sound in fraud.” Pappas, 2024 WL 4588491, at *2. Hence,
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a Section 11 claim is subject to Rule 9(b) despite assertions
that it sounds in negligence or strict liability when “the
gravamen of the complaint is plainly fraud and no effort is
made to show any other basis for the claims.” Rombach, 355
F.3d at 172 (quoting In re Stac Elecs. Sec. Litig., 89 F.3d
1399, 1405 n.2 (9th Cir. 1996) (quotation marks omitted))
(Section 11 claim sounded in fraud because “the wording and
imputations of the complaint are classically associated with
fraud”). Conversely, plaintiffs “may retain the application
of the Rule 8 notice pleading standard by expressly pleading
negligence, disclaiming fraud, eschewing language in its
Section 11 . . . claim[] implying fraud or the elements
thereof, and separating allegations supporting fraud claims
from allegations supporting negligence claims.” Pappas, 2024
WL 4588491, at *2 (when allegations “would be evaluated under
Rule 8 if contained in a stand-alone complaint alleging
violations only of the Securities Act,” they “will not be
held to a higher standard because Plaintiff also exercised
his right to sue Defendants for securities fraud under the
Exchange Act”).
Here, the Court finds that the Lead Plaintiff’s
Securities Act Claims do not sound in fraud. Counts I and II
“are framed in the classic language of negligence and strict
liability.” Id. Lead Plaintiff alleges that Ho, Leverton, and
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Genoot “had a duty to make a reasonable investigation” to
ensure that the statements in the Registration Statement were
truthful and did not omit material facts to make the
statements “not false or misleading,” and that those
Defendants failed their duty. (CAC ¶ 163.) Further, the CAC
“expressly disclaims fraud, scienter, and the intent of
Defendants to defraud investors and painstakingly segregates
the fraud and negligence claims.” Pappas, 2024 WL 4588491, at
*2 (Securities Act claims sounded in negligence where each
“claim is set forth under its own heading and incorporates
only certain factual allegations such that . . . the
Securities Act claims expressly do not incorporate the
allegations supposedly supporting a finding of scienter and
reliance”); see also In re iQIYI, Inc. Sec. Litig., No. 20
Civ. 01830, 2024 WL 4362509, at *22 (E.D.N.Y. Sept. 30, 2024)
(“Although the Exchange Act claims and Securities Act claims
share common factual allegations, the allegations contained
in the Securities Act section of the [complaint] provide an
alternative basis of liability – namely,
negligence . . . .”). Accordingly, the Court will analyze
Counts I and II under Rule 8’s pleading standard. See Pappas,
2024 WL 4588491, at *1 (“Nothing in Rule 9 or in this Court's
prior decision in Rombach forecloses pleading Section 10(b)
fraud and Section 11 negligence as alternatives with the
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former claim to be governed by Rule 9(b) and the latter by
Rule 8.”).
C. MATERIAL MISREPRESENTATION OR OMISSION
A plaintiff must allege a material untrue statement or
omission to state a claim under Securities Act Section 11 and
Exchange Act Section 10(b). See City of Westland Police &
Fire Ret. Sys. v. MetLife, Inc., 129 F. Supp. 3d 48, 88
(S.D.N.Y. 2015) (alleged misstatements “fail under Section 11
for the same principal reason that they fail under Section
10(b) — [plaintiff] has not alleged adequately that
[defendant] made a material misrepresentation or omission”).
Here, the Section 11 claim challenges Financial
Statements Nos. 1-2 and 4 and King Mountain Statements
Nos. 1-4. Although not subject to Rule 9(b)’s heightened
pleading standard, “the complaint must still allege a false
or misleading statement or omission in more than conclusory
terms.” Harris v. AmTrust Fin. Servs., Inc., 135 F. Supp. 3d
155, 170 (S.D.N.Y. 2015), aff'd, 649 F. App'x 7 (2d Cir.
2016); see also Omnicare, Inc. v. Laborers Dist. Council
Const. Indus. Pension Fund, 575 U.S. 175, 194 (2015) (to state
a Section 11 claim, the complaint “must identify particular
(and material) facts going to the basis for the issuer's
opinion . . . whose omission makes the opinion statement at
issue misleading to a reasonable person reading the statement
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fairly and in context”). Lead Plaintiff has Section 10(b)
standing to challenge King Mountain Statement No. 1 and
Financial Statement No. 3. In accordance with Rule 9(b) and
the PSLRA, the CAC “must specify the false or misleading
statement about which it complains and must allege the reason
or reasons why the statement is false or misleading.” Harris,
135 F. Supp. 3d at 170.
The Court first outlines the legal principles it will
use to analyze whether the CAC pleaded a material misstatement
or omission under Section 11 or Section 10(b). See In re Scot.
Re Grp. Sec. Litig., 524 F. Supp. 2d 370, 399 (S.D.N.Y. 2007)
(“For the same reasons the Complaint adequately pleads
falsity under 10(b) and 10b–5, the Complaint adequately
alleges material misstatements under [S]ection 11 and
[S]ection 12(a) (2).”).
1. Legal Standards
a) Falsity
To allege a misstatement, the plaintiff “must allege
adequately that the statement is untrue.” City of Westland
Police, 129 F. Supp. 3d at 67 (internal quotation marks
omitted). To allege an omission, the plaintiff must allege
that the omitted fact was material and necessary to render
another statement not misleading or that the defendant had a
duty to disclose. See Basic Inc. v. Levinson, 485 U.S. 224,
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239 n.17 (1988). To be actionably misleading, there must be
a “sufficiently close nexus” between the statement and the
allegedly omitted material information. In re Omega
Healthcare Invs., Inc. Sec. Litig., 563 F. Supp. 3d 259, 272
(S.D.N.Y. 2021). Further, a defendant cannot be liable when
the “allegedly undisclosed material information is in fact
readily accessible in the public domain.” In re KeySpan Corp.
Sec. Litig., 383 F.Supp.2d 358, 377 (E.D.N.Y.2003). Finally,
an actionable misstatement is one that “was false at the time
it was made.” In re Lululemon Sec. Litig., 14 F.Supp.3d 553,
571 (S.D.N.Y.2014) (emphasis in original).
b) Materiality
A misstatement or omission is material if “there is a
substantial likelihood that a reasonable person would
consider [the stated or omitted facts] important in deciding
whether to buy or sell shares of stock.” Operating Local 649
Annuity Trust Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d
86, 92–93 (2d Cir. 2010) (internal quotation marks omitted);
see also In re Morgan Stanley, 592 F.3d at 360 (“The
definition of materiality is the same for [Section 11] as it
is under [S]ection 10(b) . . . .”). Hence, materiality is a
mixed question of law and fact, such that a complaint may not
be dismissed on a Rule 12(b)(6) motion based on immateriality
unless the challenged statements “are so obviously
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unimportant to a reasonable investor that reasonable minds
could not differ on the question of their importance.” City
of Westland Police, 129 F. Supp. 3d at 66-67.
c) Statements Categorically Not False or
Material
“Certain types of statements are categorically incapable
of being ‘false’ or ‘misleading’” because “no reasonable
investor would rely on them.” Hawes v. Argo Blockchain plc,
No. 23 Civ. 7305, 2024 WL 4451967, at *3 (S.D.N.Y. Oct. 9,
2024).
First, forward-looking statements accompanied by risk-
disclosing language are generally not misleading or material.
The PSLRA creates a “safe harbor” for forward-looking
statements for Exchange Act and Securities Act claims. See 15
U.S.C. § 77z–2(c) (Securities Act); id. § 78u–5(c) (Exchange
Act). As relevant here, both rules provide that a forward-
looking statement is inactionable when it is identified as
forward-looking and is accompanied by “meaningful cautionary
statements identifying important factors that could cause
actual results to differ materially.” 15 U.S.C. § 77z–
2(c)(1); id. § 78u–5(c)(1); see also Slayton v. Am. Exp. Co.,
604 F.3d 758, 766 (2d Cir. 2010). Generally, a statement is
identified as forward-looking through the “use of linguistic
cues like ‘we expect’ or ‘we believe,’ when combined with an
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explanatory description of the company's intention to thereby
designate a statement as forward-looking.” Id. at 769
(internal quotation marks omitted). Moreover, meaningful
cautionary language is “not boilerplate” and “convey[s]
substantive information.” Id. at 722. Similarly, courts have
adopted a “bespeaks caution” doctrine, pursuant to which
“alleged misrepresentations in a stock offering are
immaterial as a matter of law” if no “reasonable investor
could consider them important in light of adequate cautionary
language set out in the same offering.” Rombach, 355 F.3d at
173 (internal quotation marks omitted).
Second, “general statements about reputation, integrity,
and compliance with ethical norms are inactionable
‘puffery,’” because they are “too general to cause a
reasonable investor to rely upon them.” City of Pontiac
Policemen's & Firemen's Ret. Sys. v. UBS AG, 752 F.3d 173,
183 (2d Cir. 2014) (internal quotation marks omitted); see
also Ladmen Partners, Inc. v. Globalstar, Inc., No. 07 Civ.
0976, 2008 WL 4449280, at *13 (S.D.N.Y. Sept. 30, 2008)
(“[E]xpressions of corporate optimism couched in subjective
terms of belief, expectation, and intention . . . . signals
to prospective investors that the predictions of the Company
may not come to fruition.”).
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Third, there are narrower circumstances in which a
statement of opinion, rather than fact, is actionable under
the securities laws. See City of Westland Police, 129 F. Supp.
3d at 68-69. Opinions often include “qualifying language
(like ‘I believe’ or ‘I think’) that conveys a lack of
certainty about the thing being expressed [and] marks the
statement as reflecting the speaker's impression or point of
view.” New England Carpenters Guaranteed Annuity & Pension
Funds v. DeCarlo, 122 F.4th 28, 40-41 (2d Cir. 2023); see
also Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307, 1329 (11th
Cir. 2019) (recognizing “a fair amount of overlap” in
“discussions of . . . opinions, and forward-looking
statements,” with both “lead[ing] to the same bottom-line
question: Did [defendant] make . . . a false representation
that a reasonable investor would have relied on in light of
the total mix of information available?”). A “sincere
statement of pure opinion is not an ‘untrue statement of
material fact,’ regardless [of] whether an investor can
ultimately prove the belief wrong.” Omnicare, 575 U.S. at
186.
There are three circumstances, however, where a
statement of opinion may be actionable: (1) “the speaker did
not hold the belief she professed,” (2) the opinion contained
untrue “embedded statements of fact,” or (3) the opinion omits
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facts “mak[ing] [the] statement of opinion . . . misleading
to an ordinary investor.” Id. at 185-87; see also Tongue
v. Sanofi, 816 F.3d 199, 214 (2d Cir. 2016) (applying Omnicare
to Exchange Act claims). Opinions omitting facts can mislead
because, in the context of SEC filings, reasonable investors
“properly may assume that expressions of opinion contained
therein convey facts about how the speaker has formed the
opinion.” City of Westland Police, 129 F. Supp. 3d at 70
(internal quotations omitted).
To plead that an opinion is untrue, the plaintiff must
“plead facts that, if true, would be sufficient to show that
the speaker did not ‘actually hold[] the stated belief.’”
City of Westland Police, 129 F. Supp. 3d at 69 (quoting
Omnicare 575 U.S. at 184)). To plead that an opinion contains
an embedded untrue statement of fact, the plaintiff must show
that “the embedded fact is not one as to which reasonable
minds can differ.” New England Carpenters, 122 F.4th at 42
(2d Cir. 2023). To plead that an opinion is misleading because
of an omission, the plaintiff must “call into question the
issuer’s basis for offering the opinion.” City of Westland
Police, 129 F. Supp. 3d at 70 (internal quotation marks
omitted). When a plaintiff challenges omissions in opinion
statements in SEC filings, the plaintiff must also allege
that omitted “facts conflict with what a reasonable investor
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would take from the statement.” Id. at 72 (internal quotation
marks omitted).
2. Financial Statements
The CAC alleges that the Financial Statements were
materially false or misleading because they misled investors
that USBTC was financially sound enough to sustain operations
for twelve months and that its cash flows were improving.
(See CAC ¶ 69.) The Court finds that the CAC failed to plead
that the Financial Statements were material misstatements or
omissions because the only evidence of falsity the CAC alleges
are disclosures and projections in the SEC filings containing
the Financial Statements and a statement made at a Hut 8
Retreat held several weeks after the most recent Financial
Statement, which are insufficient under Rule 8 or Rule 9(b)’s
pleading standard. (See CAC ¶¶ 70, 75, 81.) Regardless, the
Financial Statements are inactionable because they are
forward-looking statements accompanied by significant
cautionary language and statements of opinion. Finally, the
CAC fails to plead an Item 303 violation because it does not
identify any financial information that was not disclosed.
Accordingly, on the basis of the following discussion,
the Court GRANTS the Motion to Dismiss Counts I and II (the
Securities Act Claims) as to Financial Statements Nos. 1-2
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and 4 and Counts III and IV (the Exchange Act Claims) as to
Financial Statement No. 3.
a) Falsity
First, the CAC asserts that the Financial Statements
were misleading considering USBTC’s disclosed historic
financial statements and overly optimistic financial
projections. (See CAC ¶¶ 70-79.) Regarding USBTC’s ability to
sustain operations for another twelve months, Lead Plaintiff
contends that USBTC’s current assets to current liabilities
ratio and negative operating cash flows contained in the
Prospectus show that USBTC could not have continued
operations for a year. (See id. ¶¶ 71-74.) But in reaching
this conclusion, the CAC relies on disclosed financial
information, which the CAC does not allege was false. (See
Prospectus at 185, 224.) See In re Hardinge, Inc. Sec. Litig.,
696 F. Supp. 2d 309, 323 (W.D.N.Y. 2010) (no falsity when
plaintiffs did not allege “that any of the [embedded]
financial information reported was incorrect”). “[A]
violation of federal securities law cannot be premised upon
a company's disclosure of accurate historical data.” Boca
Raton Firefighters & Police Pension Fund v. Bahash, 506 F.
App'x 32, 39 (2d Cir. 2012) (quoting In re Sofamor Danek
Group, Inc., 123 F.3d 394, 401 n. 3 (6th Cir. 1997) (internal
quotations marks omitted)). To the extent the CAC alleges
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that the Financial Statements omitted these financial
disclosures, Defendants cannot be liable for omitting
disclosed information. See In re KeySpan Corp., 383 F.Supp.2d
at 377; In re Bank of Am. AIG Disclosure Sec. Litig., 980 F.
Supp. 2d 564, 577 (S.D.N.Y. 2013), aff’d, 566 F. App'x 93 (2d
Cir. 2014) (“Reasonable investors thus had ready access to
the very information that the plaintiffs assert should have
been disclosed.”).
The Court is not persuaded by Lead Plaintiff’s argument
that, despite USBTC’s financial disclosures, the Financial
Statements were misleading because expert analysis would be
required for the average investor to understand USBTC’s
financial condition. (See Opp’n. at 7-8.) In the cases Lead
Plaintiff cites, defendants’ disclosures did not include
readily ascertainable information undercutting the alleged
misstatements. See Sec. & Exch. Comm’n v. Medallion Fin.
Corp., No. 21 Civ. 11125, 2024 WL 4227753, at *10 (S.D.N.Y.
Sept. 18, 2024) (routine financial disclosures in SEC filings
did not render the allegedly fraudulent valuation of
subsidiary immaterial because those disclosures did not
include the company’s “third-party solicitations, cherry-
picking of a valuation specialist, or disputes with its
auditor”); In re Chi. Bridge & Iron Co. N.V. Sec. Litig., No.
17 Civ. 1580, 2020 WL 1329354, at *7 (S.D.N.Y. Mar. 23, 2020)
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(despite analyzing public information, stock-analyst report
was a corrective disclosure because the report discussed
questionable accounting practices that were not disclosed).
Moreover, the CAC alleges that USBTC’s projected free
cash flow and projected EBITDA and EBITDA Margin for calendar
year 2023 were overly optimistic considering USBTC’s negative
operating cash flow experienced in Fiscal 2023 and actual
EBITDA and EBITDA Margin it achieved in Fiscal 2023. Hence,
Lead Plaintiff contends, those over-optimistic projections
further support falsity of the Financial Statements. (See CAC
¶¶ 76-79; 7th Amend. at 103; Prospectus at 103.) But
immediately following the EBITDA, EBITDA Margin, and free
cash flow projections, the Seventh Amendment and Prospectus
disclose “material assumptions” Defendants relied upon “in
arriving at USBTC’s projected financial information.” (7th
Amend. at 103-04; Prospectus at 103.) Further, in that
section, the Seventh Amendment and Prospectus cautioned that
while “USBTC believe[d]” the material assumptions “were
reasonable at the time the projected financial information
was prepared,” those assumptions “may not reflect actual
future conditions,” such that the projections should not “be
relied upon as a current forecast of the near-term results
that USBTC may achieve.” (7th Amend. at 104; Prospectus at
104.) Defendants cannot be liable “on the basis of statements
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that clearly ‘bespeak caution.’” See Luce v. Edelstein, 802
F.2d 49, 56 (2d Cir. 1986) (affirming dismissal of Section
10(b) claim when challenged SEC filing “made it quite clear
that its projections of potential cash and tax benefits were
‘necessarily speculative in nature’ and that ‘[n]o assurance
[could] be given that these projections [would] be
realized’”); In re NovaGold Res. Inc. Sec. Litig., 629 F.
Supp. 2d 272, 293, 295 (S.D.N.Y. 2009) (dismissing Section 11
claim when challenged “cost figure and economic viability
prediction” were accompanied by a list of “the Project's
expected costs based on a ‘base case’ of assumptions about
metals prices, as well as ‘estimates of annual production and
cash costs’”).
Second, the CAC contends that the Financial Statements
were misleading because Leverton allegedly stated during a
Hut 8 retreat held in mid-January 2024 that “the Merger saved
USBTC from bankruptcy,” revealing USBTC’s true financial
condition. (CAC ¶ 81.) But this assertion – made several
weeks after the December 19, 2023, 10-Q, the latest SEC filing
containing a Financial Statement – does not support that the
Financial Statements were false at the time they were made.
See San Leandro Emergency Med. Grp. Profit Sharing Plan
v. Philip Morris Cos., Inc., 75 F.3d 801, 812 (2d Cir. 1996)
(failure to plead contemporaneous falsity in Section 10(b)
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claim when alleged misstatement that retail sales were
declining at a rate of 2.5 percent was followed by an
announcement three weeks later that sales were declining at
a rate of 8.3 percent); In re CIT Grp., Inc. Sec. Litig., 349
F. Supp. 2d 685, 690-91 (S.D.N.Y. 2004) (failure to plead
contemporaneous falsity in Section 11 claim when defendants
increased loan loss reserves three weeks after completing an
initial public offering).
b) Forward-Looking Statements
Regardless, each Financial Statement comprises an
inactionable forward-looking statement accompanied by
cautionary language.
First, all Financial Statements are forward-looking
statements of financial performance and identified as such.
See 15 U.S.C. § 77z-2(i)(1)(C); id. § 78u-5(i)(1)(C);
Slayton, 604 F.3d at 766-67. Each SEC filing containing a
Financial Statement included a disclaimer that “[f]orward-
looking statements generally are identified by the
words . . . ‘anticipate’ . . . [and] ‘believe.’” (Initial
Registration Statement at 25, 1st Amend. at 23; 2d Amend. at
24; 3d Amend. at 24; 4th Amend. at 23; 5th Amend. at 23; 6th
Amend. at 23; 7th Amend. at 23; Prospectus at 23; Dec. 2023
10-Q at 3.) Financial Statements Nos. 1-3 state that USBTC
“believes” that current cash on hand, subsequent debt and
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equity financings, and/or proceeds from the sales of
cryptocurrency and ongoing operations “will be sufficient” to
meet operating and capital requirements for the next twelve
months. Financial Statement No. 4 states that USBTC “does not
anticipate it will continue to incur net losses for the
foreseeable future.” See, e.g., In re SunEdison, Inc. Sec.
Litig., 300 F. Supp. 3d 444, 464 (S.D.N.Y. 2018) (statement
that “[w]e believe our liquidity will be sufficient to support
our operations for the next twelve months” was forward-
looking).
Lead Plaintiff contends that the Financial Statements
are not forward-looking because they misrepresent present
facts. (See Opp’n. at 12.) But the only embedded present fact
in Financial Statements Nos. 1-3 is the amount of “current
cash on hand,” which was disclosed. The availability and
amount of “subsequent equity and debt financings” (Fin.
Statement No. 1) and the amount of “proceeds from the sale of
cryptocurrency and ongoing operations” (Fin. Statements
Nos. 2-3) plainly refer to future sources of funds. Further,
Lead Plaintiff contends that Financial Statement No. 4
misrepresents the present fact that “USBTC’s trend of
incurring net losses had not improved and would have
continued.” (Opp’n. at 12.) But Financial Statement No. 4
acknowledges that USBTC’s net losses had not improved at the
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time of the Statement’s publication. The Statement in full
reads: “USBTC has incurred net losses since its inception but
does not anticipate it will continue to incur net losses for
the foreseeable future.” USBTC’s prediction that it would not
continue to incur net losses embodies a future statement. See
In re NovaGold Res., 629 F. Supp. 2d at 292 (“Any projection
or forward-looking statement necessarily has its basis in
current conditions, but this does not change the fact that it
uses those current conditions to make some kind of prediction
about the future.”).
Second, each Statement is accompanied by meaningful
cautionary statements identifying important factors that
could cause actual results to differ materially. See 15 U.S.C.
§ 77z-2(c)(1)(A)(i); id. § 78u-5(c)(1)(A)(i). In Financial
Statement No. 1, USBTC professed that it believed “its
current cash on hand and subsequent debt and equity
financings” would be sufficient to sustain operations for a
year. Regarding subsequent financings, the Initial
Registration Statement and the First, Second, and Third
Amendments warned that “there can be no assurance that
additional funding will be available to USBTC for the
development of its business, which will require the
commitment of substantial resources,” and cautioned that
“potential investors should consider that USBTC may be unable
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to . . . raise sufficient funds in the capital markets to
effectuate its business plan.” (Initial Registration
Statement at 39; 1st Amend. at 40; 2d Amend. at 42; 3d Amend.
at 42.)
In Financial Statements Nos. 2-3, USBTC asserted that it
believed “its current cash on hand, proceeds from the sale of
cryptocurrency and ongoing operations” would be sufficient to
sustain operations for a year. Regarding the sale of
cryptocurrency and USBTC’s operations, the Prospectus and the
Fourth, Fifth, Sixth, and Seventh Amendments warned that
“potential investors should consider that USBTC may be unable
to . . . successfully implement or execute its business
plan.” (4th Amend. at 41; 5th Amend. at 42; 6th Amend. at 42;
7th Amend. at 42; Prospectus at 42.) Those SEC filings also
cautioned that USBTC’s Bitcoin mining business could be
negatively impacted by, among other things, the availability
of and rising costs of Bitcoin miners, changes to validating
blockchain transactions that could reduce demand for USBTC’s
services, and any failure in critical plants, equipment,
power supplies, or network connectivity. (4th Amend. at 42-
45; 5th Amend. at 42-45; 6th Amend. at 42-45; 7th Amend. at
42-45.) The 2023 December 10-Q contains the above warnings,
as it incorporates the Prospectus by reference. (See 2023
Dec. 10-Q at 44.)
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In Financial Statement No. 4, USBTC stated that it “does
not anticipate it will continue to incur net losses for the
foreseeable future.” Regarding the possibility that USBTC
would continue to incur losses the Registration Statement
warned that “USBTC is an early-stage company with limited
operating history and may never become profitable” and that,
“[t]o date, USBTC has incurred losses . . . and may never
become profitable.” (Initial Registration Statement at 38;
1st Amend. at 40; 2d Amend. at 41-42; 3d Amend. at 42; 4th
Amend. at 41; 5th Amend. at 41-42; 6th Amend. at 41-42; 7th
Amend. at 41-42; Prospectus at 41-42.) As discussed above,
the Registration Statement also described the risks that
USBTC would be unable to secure funding and that various
contingencies would negatively impact its Bitcoin mining
operations.
Accordingly, the Court finds that each Financial
Statement is accompanied by meaningful cautionary statements
that render them inactionable under the PSLRA safe harbor
provision and the bespeaks caution doctrine. See In re Gilat
Satellite Networks, Ltd., No. 02 Civ. 1510, 2005 WL 2277476,
at *11 (E.D.N.Y. Sept. 19, 2005) (“[T]he Second Circuit has
at times applied the bespeaks caution doctrine in conjunction
with the PSLRA safe harbor without distinguishing between the
two.”).
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c) Opinions
The Financial Statements are also inactionable
statements of opinion. First, the Financial Statements are
opinions regarding USBTC’s “belie[f]” that it would have
sufficient funds to maintain operations for twelve months and
“anticipat[ion]” that it would not continue to incur net
losses for the foreseeable future. See New England
Carpenters, 122 F.4th at 40-41.
Second, even viewed in the light most favorable to the
Lead Plaintiff, the CAC does not adequately allege that
Defendants could not have believed what they professed. Lead
Plaintiff argues that Defendants could not have believed the
opinions because (1) Defendants were provided USBTC’s due
diligence information beginning in November 2022 – several
months before the first Financial Statement was published on
February 13, 2023 – and (2) Leverton stated that the Merger
saved USBTC from bankruptcy at a Hut 8 retreat on January 14-
17, 2024 – several weeks after the last Financial Statement
was published on December 19, 2023. (See Opp’n. at 9-10; CAC
¶¶ 80-81, 125; Prospectus at 85.) But, as explained above,
those facts do not sufficiently allege that the Defendants
did not believe their opinions at the time the Financial
Statements were made. See In re Lululemon, 14 F.Supp.3d at
578 (statements about the company's expectation regarding
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product quality were not false or misleading because the
complaint failed to allege “any facts that tend to show that
the company did not believe this expectation at the time”).
Regarding Leverton’s alleged statement made weeks after the
final Financial Statement, “[i]t is not sufficient . . . to
allege that an opinion was unreasonable, irrational,
excessively optimistic, [or] not borne out by subsequent
events.” Lopez v. CTPartners Exec. Search Inc., 173 F. Supp.
3d 12, 24 (S.D.N.Y. 2016) (internal quotation marks omitted).
Third, Lead Plaintiff fails to allege that the opinions
contained an embedded statement of untrue fact. As explained
above, the only embedded statements of present fact in the
Financial Statements were USBTC’s “current cash on hand”
(Fin. Statements Nos. 1-3) and “USBTC has incurred net losses
since its inception” (Fin. Statement No. 4.) The SEC filings
containing each Statement disclosed USBTC’s current cash on
hand. Lead Plaintiff does not allege that those disclosures
were false or that USBTC had not incurred net losses since
its inception.
Fourth, Lead Plaintiff does not plead facts showing that
the opinions contained omissions that “conflict with what a
reasonable investor would take from the statement itself.”
City of Westland Police, 129 F. Supp. 3d at 72 (internal
quotations omitted). Given the litany of financial and risk
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disclosures described above, a reasonable investor would not
have taken the Financial Statements as guarantees. See
Omnicare, 575 U.S. at 190 (“[A]n investor reads each statement
within such a document, whether of fact or of opinion, in
light of all its surrounding text, including hedges,
disclaimers, and apparently conflicting information.”).
d) Item 303
The CAC alleges that Financial Statement No. 4 violated
Item 303 of SEC Regulation S-K, as that Statement misleadingly
suggested that USBTC’s trend of incurring net losses would
not continue, the disclosed historical financial statements
supported that USBTC would continue to incur net losses, USBTC
was in imminent danger of bankruptcy, and these “undisclosed
facts were known trends” likely to have an adverse impact on
Hut 8’s revenues and income from operations. (CAC ¶ 106.)
A defendant can be liable under Section 11 for Item 303
violations. See Panther Partners Inc. v. Ikanos Commc’ns,
Inc., 681 F.3d 114, 120 (2d Cir. 2012). Item 303 requires an
issuer to “[d]escribe any known trends or uncertainties that
have had or that are reasonably likely to have a material
favorable or unfavorable impact on net sales or revenues or
income from continuing operations.” 17 C.F.R.
§ 229.303(b)(2)(ii). Therefore, a defendant may be liable
under Item 303 if it failed to disclose a trend that “is both
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[1] presently known to management and [2] reasonably likely
to have material effects on the registrant’s financial
condition or results of operations.” Litwin v. Blackstone
Grp., L.P., 634 F.3d 706, 716 (2d Cir. 2011) (quoting SEC
Release No. 6835, 54 Fed. Reg. 22427, 22429 (May 18, 1989),
1989 WL 1092885, at *4 (internal quotation marks omitted)).
Further, Item 303 subsection (a) provides that the
“discussion and analysis must focus specifically on material
events and uncertainties known to management that are
reasonably likely to cause reported financial information not
to be necessarily indicative of future operating results or
of future financial condition.” 17 C.F.R. § 229.303(a). In
other words, Item 303’s “essential obligation” is explaining
“[i]f there has been an important change in [the] company’s
business or environment that significantly or materially
decreases the predictive value of [the] reported results.”
Lowinger v. Pzena Inv. Mgmt., Inc., 341 F. App'x 717, 720 (2d
Cir. 2009) (quoting Oxford Asset Mgmt., Ltd. v. Jaharis, 297
F.3d 1182, 1192 (11th Cir. 2002) (internal quotation marks
omitted)).
Moreover, “[k]nowledge of a trend is an essential
element triggering disclosure under Item 303.” In re Noah
Educ. Holdings, Ltd. Sec. Litig., No. 08 Civ. 9203, 2010 WL
1372709, at *6 (S.D.N.Y. Mar. 31, 2010). Although “Section 11
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claims generally do not require pleading scienter, Item 303’s
requirement of knowledge requires that a plaintiff plead,
with some specificity, facts establishing that the defendant
had actual knowledge of the purported trend.” Blackmoss
Investments Inc. v. ACA Capital Holdings, Inc., No. 07 Civ.
10528, 2010 WL 148617, at *9 (S.D.N.Y. Jan. 14, 2010).
Here, the CAC fails to allege a violation of Item 303
because it “fail[s] to identify any adverse economic event or
trend that occurred prior to the [Merger] that was not
disclosed in the Offering Documents.” Schaffer v. Horizon
Pharma PLC, No. 16 Civ. 1763, 2018 WL 481883, at *14 (S.D.N.Y.
Jan. 18, 2018). Indeed, the CAC asserts that Financial
Statement No. 4 omitted “undisclosed facts,” but in the same
sentence refers to “historical financial statements,” which,
as discussed above, were disclosed. (CAC ¶ 106.) Financial
Statement No. 4 likewise disclosed that “USBTC has incurred
net losses since its inception.”
Additionally, the CAC fails to plead that the Defendants
had actual knowledge that USBTC’s net losses would continue.
The CAC alleges that the Individual Defendants knew that USBTC
faced imminent bankruptcy and had experienced negative cash
flows by virtue of their positions within USBTC, Legacy Hut,
and Hut 8 and their access to information exchanged during
the Merger’s diligence period. The CAC posits that the
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Individual Defendants’ knowledge is imputable to Hut 8. (See
CAC ¶¶ 125, 140.) These allegations, however, do not support
that the Individual Defendants knew that USBTC would continue
to incur net losses at the time Financial Statement No. 4 was
published. As discussed above, at a Hut 8 retreat on January
14-17, 2024, Leverton allegedly stated that the Merger saved
USBTC from bankruptcy. That occurred more than a month after
the Forms S-8 were published, which constituted the most
recent SEC filings containing Financial Statement
No. 4. It does not support a finding that the Individual
Defendants knew that USBTC would continue to incur net losses.
***
Accordingly, the Court GRANTS the Motion to Dismiss the
Securities Act Claims as to Financial Statements Nos. 1-2 and
4 (Counts I and II) and the Exchange Act Claims as to
Financial Statement No. 3 (Counts III and IV) because Lead
Plaintiff has failed to plead that any Financial Statement is
actionable under either the Securities Act or the Exchange
Act. Therefore, Plaintiff has likewise failed to state a claim
for control person liability under the Securities Act or
Exchange Act. See In re Weight Watchers Int’l Inc. Sec.
Litig., 504 F. Supp. 3d 224, 252 (S.D.N.Y. 2020) (“In light
of the dismissal of the Section 11 and Section 10(b) claims
against all Defendants, Plaintiffs’ Sections 15 and 20(a)
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claims, which rely on the same underlying factual
allegations, are also dismissed.”).
3. King Mountain Statements
The CAC alleges that the King Mountain Statements
Nos. 1-3 are materially misleading because they failed to
disclose energy issues that had materialized at the King
Mountain JV when those Statements were made. (See CAC ¶¶ 91,
100.) Likewise, the CAC alleges that King Mountain Statement
No. 4 is materially misleading because it failed to disclose
that internet connectivity problems had materialized. (See
id. ¶¶ 92, 100.) As explained above, Lead Plaintiff has
Section 10(b) standing to challenge only King Mountain
Statement No. 1. The Court finds that King Mountain Statement
No. 1 is inactionable puffery under both the Securities Act
and the Exchange Act, and that Lead Plaintiff failed to plead
that King Mountain Statement No. 2 is materially false or
misleading under the Securities Act. The Court finds,
however, that the CAC adequately pleaded a material omission
under Section 11 of the Securities Act as to King Mountain
Statements Nos. 3-4. The CAC did not plead a violation of
Item 105 as to King Mountain Statement No. 4, however, because
the CAC does not demonstrate that Ho, Genoot, Leverton, or
Hut 8 actually knew about the alleged internet problems.
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Accordingly, the Court GRANTS the Motion to Dismiss the
Lead Plaintiffs’ Securities Act Claims as to King Mountain
Statement Nos. 1-2 and 4 (insofar as Statement No. 4 is
alleged to violate Item 105) (Counts I and II) and the
Exchange Act Claims as to King Mountain Statement No. 1
(Counts III and IV). The Court finds, however, that the CAC
adequately pleaded a material omission as to King Mountain
Statements Nos. 3-4.
a) Puffery
King Mountain Statement No. 1 is inactionable puffery.
That Statement – asserting that the “USBTC team will bring
significant leadership in energy orientation . . . which will
enhance [Hut 8’s] ability to better plan around” stable energy
usage and fluctuating prices - is included in two places in
the Registration Statement. First, as an answer to the
question “[w]hy are the two companies proposing the Business
Combination” as an example of “[k]ey strategic advantages of
the Business Combination - [i]mproving [Hut 8’s] energy
expertise and hedging capabilities.” (Registration Statement
at 1-2.) Second, in the section listing “[t]he [Legacy Hut]
Board’s Reasons for the Business Combination.” That section
stated that “the [Legacy Hut] Board considered a number of
factors, including . . . the [Legacy Hut] Board’s belief that
the USBTC team brings significant leadership in energy
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origination, development, demand response, hedging, grid
stabilization, and analytics significantly enhancing [Legacy
Hut’s] ability to mitigate fluctuating energy prices across
markets.” (Initial Registration Statement at 80-81; 1st
Amend. at 84-85; 2d Amend. at 86-87; 3d Amend. at 86-87; 4th
Amend. at 85-86; 5th Amend. at 86-87; 6th Amend. at 87-88;
7th Amend. at 87-88; Prospectus at 87-88.)
“Up to a point, companies must be permitted to operate
with a hopeful outlook.” Rombach, 355 F.3d at 174; see also
IBEW Loc. Union No. 58 v. Royal Bank of Scotland Grp., PLC,
783 F.3d 383, 392 (2d Cir. 2015) (statement that acquisition
was “off to a promising start” was puffery). The assertions
that the Legacy Hut Board’s “belief” that USBTC would bring
“significant leadership” thus “enhancing” the ability to
mitigate energy price fluctuations is “too open-ended and
subjective to constitute a guarantee upon which a reasonable
investor would rely.” Gross v. GFI Grp., Inc., 784 F. App’x
27, 30 (2d Cir. 2019) (internal quotation marks omitted); see
also In re Star Gas Sec. Litig., No. 04 Civ. 1766, 2006 WL
8439191, at *10 n.2 (D. Conn. Aug. 21, 2006) (“Vague
statements about industry leadership . . . are classic
puffery . . . .” (internal quotation marks omitted)).
Accordingly, King Mountain Statement No. 1 cannot
sustain a claim under Sections 11 or 15 of the Securities Act
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or a claim under Sections 10(b) or 20(a) of the Exchange Act,
and the Court GRANTS the Motion to Dismiss Counts I-IV as to
King Mountain Statement No. 1.
b) Falsity
Lead Plaintiff failed to allege facts showing that King
Mountain Statement No. 2 is materially false or misleading.
In full, that Statement reads, with the challenged portion
bolded:
Renewable energy sources powering USBTC’s owned and
operated sites include renewable energy and zero
carbon emission energy from wind, hydro, and nuclear
sources. As of January 31, 2023: . . . The Echo
facility at King Mountain is co-located behind the
meter at a wind farm, and at peak wind generation
periods can draw up to 100% of the energy the wind
project produces to power mining and hosting; the
rest of the time, the energy is sourced from ERCOT
which includes more than 40% zero carbon emission
sources.
(Initial Registration Statement at 132; see CAC ¶ 89.) The
CAC contends that King Mountain Statement No. 2 is materially
misleading because it “failed to disclose the energy issues
that had already materialized.” (Id. ¶ 91.) In support, the
CAC alleges that (1) CW 1 had daily discussions about the
“ongoing energy issues” at the King Mountain JV; (2) Genoot
complained about the King Mountain JV’s efficiency; and (3)
CW 1 saw evidence of energy issues in the Hashrate failure
and energy usage reports. (Id. ¶¶ 93-96.) Even when viewed in
the light most favorable to the Lead Plaintiff, none of the
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foregoing allegations are relevant to the King Mountain JV’s
renewable energy sources. Further, the CAC does not dispute
the veracity of the assertion that as of January 31, 2023,
“at peak wind generation periods [the Echo facility] can draw
up to 100% of the energy the wind project produces to power
mining and hosting.” Because there is not a “sufficiently
close nexus” between King Mountain Statement No. 2 and the
allegedly omitted information regarding power grid failures,
the Court finds that the CAC failed to plead a material
omission as to that Statement. In re Omega Healthcare, 563 F.
Supp. 3d at 272.
Accordingly, the Court GRANTS the Motion to Dismiss the
Securities Act Claims as to King Mountain Statement No. 2
(Counts I-II).
c) Risks of Internet and Energy Problems
Lead Plaintiff sufficiently pleaded, however, that King
Mountain Statements Nos. 3-4 were material omissions because
the CAC sufficiently alleges that the King Mountain JV
experienced energy and internet problems that were knowable
before the Merger and that King Mountain Statements Nos. 3-4
did not disclose.
To state a Securities Act Section 11 claim based on a
material omission, plaintiffs must sufficiently plead that
the “allegedly omitted facts both existed, and were known or
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knowable, at the time of the offering.” Lin v. Interactive
Brokers Grp., Inc., 574 F. Supp. 2d 408, 421 (S.D.N.Y. 2008).
A fact is knowable if “the relevant event had already
transpired at the time of the offering.” Winter v. Stronghold
Digital Mining, Inc., 686 F. Supp. 3d 295, 306 (S.D.N.Y.
2023). Critically, “whether a fact was ‘knowable’ . . . is
not the same as whether a defendant ‘knew,’ or ‘should have
known’ of that fact.” Id. (rejecting argument that plaintiff
failed to plead defendants’ knowledge because “knowledge is
not an element of a plaintiff's prima facie case for Section
11” (internal quotation marks omitted)).
The bulk of the CAC’s allegations regarding the King
Mountain JV’s energy and internet problems rests on CW 1’s
allegations. Courts in the Second Circuit allow “plaintiffs
to rely on unnamed sources so long as ‘[the unnamed sources]
are described in the complaint with sufficient particularity
to support the probability that a person in the position
occupied by the source would possess the information
alleged.’” New Jersey Carpenters Health Fund v. Royal Bank of
Scotland Grp., 709 F.3d 109, 123–24 (2d Cir. 2013) (quoting
Novak v. Kasaks, 216 F.3d 300, 314 (2d Cir. 2000) (applying
Novak to Securities Act claims). Here, the CAC describes CW
1 and pleads the CW 1’s allegations with sufficient
particularity for the Court to credit them at this stage of
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the litigation. See In re Tufin Software Techs. Ltd. Sec.
Litig., No. 20 Civ. 5646, 2022 WL 596861, at *7-8 (S.D.N.Y.
Feb. 25, 2022) (when applying Rule 8 to Section 11 claim,
holding that confidential witness allegations were reliable
because witnesses held positions at defendant company during
the operative period, suggesting witnesses would have had
knowledge of the subject of the alleged misstatement).
First, the CAC pleads specific facts showing that CW 1
would have knowledge of the King Mountain JV’s energy and
internet problems during the relevant period. The CAC asserts
that CW 1 worked as a data analyst at Hut 8 in the months
before the Merger and thereafter, that CW 1 had “daily
discussions with the Director of Infrastructure before the
Merger about the ongoing energy issues at the King Mountain
JV,” and that CW 1’s duties included daily tracking of miner
outages. (CAC ¶ 93; see id. ¶ 95.) Defendants argue that the
Court should discount CW 1’s allegations as “uncorroborated
statements” and insufficiently particular. (Mem. at 10, 18.)
But the cases Defendants cite adjudicate Section 10(b) claims
subject to Rule 9(b)’s and the PSLRA’s heightened pleading
standard for securities fraud. See, e.g., Long Miao v. Fanhau,
Inc., 442 F. Supp 3d 774, 790, 800 (S.D.N.Y. 2020). Under the
less rigorous Rule 8 standard, however, the CAC’s allegations
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are sufficiently particular. See In re Tufin Software Techs.,
2022 WL 596861, at *7-8.
Second, the CAC pleads specific facts regarding the King
Mountain JV’s energy and internet problems, which are
sufficient to support an inference under Rule 8 that the
problems occurred and were knowable. The CAC contends that CW
1 knew that Genoot complained about the King Mountain JV
miners’ efficiency during general meetings; that the mining
data CW 1 analyzed showed that there were “energy issues in
the Hashrate failure and energy usage reports;” that CW 1
knew that King Mountain JV had inefficient miners that impeded
the ability to properly mine; and that during CW 1’s time
with the Company there were “often dips” in network service
with “several outages and network failures,” which were
“often significant” and caused by broken or offline miners.
(Id. ¶¶ 94, 96-98.) Further, the CAC pleads that CW 1 stated
that Operations senior management directed data analysts “to
classify the outages in a manner that masked their true
nature,” such as by characterizing the miners as “overheated”
instead of offline, and that “over half, or more, outages
were falsely reclassified as overheated” (Id. ¶ 99.)
Further, King Mountain Statements Nos. 3-4 do not
disclose that the alleged energy and internet problems
occurred at the King Mountain JV. “[C]autionary words about
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future risk cannot insulate from liability an issuer’s
failure to disclose that the risk has, in fact, materialized
in the past and is virtually certain to materialize again.”
Set Capital LLC. v. Credit Suisse Grp. AG, 996 F.3d 64, 85
(2d Cir. 2021) (bank’s warning that hedging activity “could”
impact note prices but that bank had “no reason to believe”
it would was materially misleading when “three episodes of
market volatility” had proved the price impact). “[W]arning
that something ‘may’ occur when that event ‘had’ already
occurred” is a misstatement of present fact, not “mere
opinions of future possibilities.” In re Facebook, Inc. IPO
Sec. & Derivative Litig., 986 F. Supp. 2d 487, 518 (S.D.N.Y.
2013) (disclosure that mobile usage and product decisions
“may negatively affect [defendant’s] revenue” were materially
misleading when those factors had adversely impacted revenue
and the challenged registration statements “include[ed]
positive statements, that clashed with [defendant’s] risk
warnings on the same issues”); cf. In re UiPath, Inc. Sec.
Litig., 755 F. Supp. 3d 498, 514 (S.D.N.Y. 2024) (statements
that allegedly failed to disclose known risks were not
misleading because the challenged disclosures “were not
purely hypothetical” and were accompanied by “adverse
circumstances that the company was currently experiencing”).
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Here, although King Mountain Statements Nos. 3-4 are
accompanied by significant risk disclosures about the King
Mountain JV’s power grid and potential internet disruptions,
those disclosures are forward-looking hypotheticals that do
not disclose that the King Mountain JV experienced energy and
internet problems. (See, e.g., Initial Registration Statement
at 42, 46-47, 58.) Accordingly, the Court finds that those
Statements were misleading because they omitted energy and
internet problems that materialized.
Defendants argue that, even if the CAC pleaded that the
King Mountain JV experienced undisclosed energy and internet
problems, the CAC failed to plead that those problems were
material because (1) King Mountain is a joint venture that
accounts for a small part of Hut 8’s business, (2) the CAC
does not allege a negative impact on the price of mining
Bitcoin, USBTC, or Hut 8 as a whole, and (3) the problems
were “commonplace connectivity issues” that would be within
the a reasonable investor’s common knowledge. (Reply at 4;
see also Mem. at 18.) The extent of energy and internet
problems at the King Mountain JV is a question of fact
inappropriate at this stage. Further, the CAC asserts that a
“major component of USBTC’s business consisted of self-mining
Bitcoin at its digital asset mining sites, including at the
King Mountain JV,” and that “reliable energy sources and
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internet access were critical to the operations of such
sites.” (CAC ¶ 136; see also id. ¶ 110.) Accordingly, taking
the CAC’s allegations as true for the purposes of evaluating
the Motion, the alleged energy and internet problems at the
King Mountain JV are not “so obviously unimportant to a
reasonable investor that reasonable minds could not differ on
the question of their importance.” City of Westland Police,
129 F. Supp. 3d at 66-67 (internal quotation marks omitted).
Therefore, the Court declines to dismiss Counts III and IV as
to King Mountain Statements Nos. 3-4 on the basis that,
according to Defendants, those Statements are immaterial.
d) Item 105
The CAC alleges that King Mountain Statement No. 4
violated Item 105 of SEC Regulation S-K by misleadingly and
inaccurately suggesting that internet disruptions were a
potential risk when that risk had already materialized at the
King Mountain JV. (See CAC ¶ 109.)
Item 105, formerly Item 503, requires that SEC offering
documents provide “a discussion of the material factors that
make an investment in the registrant or offering speculative
or risky.” 17 C.F.R. § 229.105(a). Further, Item 105 requires
that the “Risk Factors” section “[c]oncisely explain how each
risk affects the registrant or the securities being offered.”
Id. § 229.105(b).
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Whereas a claim for a material omission under Section 11
requires allegations that the omission was “knowable,” a
claim for a violation of Item 105 under Section 11 requires
that plaintiffs “demonstrate actual knowledge of . . . [a]
risk.” In re HEXO Corp. Sec. Litig., 524 F. Supp. 3d 283,
300, 302 (S.D.N.Y. 2021) (internal quotation marks omitted);
see also Lian v. Tuya Inc., No. 22 Civ. 6792, 2024 WL 966263,
at *9 (S.D.N.Y. Mar. 5, 2024) (“Most courts . . . have
concluded that Item 105 does impose a knowledge
requirement . . . .”). A showing of actual knowledge requires
“allegations of specific facts from which [a court] could
draw the plausible inference that defendants had actual
knowledge of the [the risk] at the time the registration
statement was issued.” Medina v. Tremor Video, Inc., 640 F.
App’x 45, 48 (2d Cir. 2016) (internal quotation marks omitted)
(discussing actual knowledge in the context of Item 303); see
also Lian, 2024 WL 966263, at *7, 9 (applying Medina’s actual
knowledge standard to Item 105 and holding that plaintiffs
failed to allege that defendant actually knew its customers
falsified online reviews when plaintiffs relied on public
reports of fake reviews but did not allege that defendant’s
customers were involved); cf. In re Chembio Diagnostics, Inc.
Sec. Litig., 586 F. Supp. 3d 199, 230 (E.D.N.Y. 2022)
(plaintiffs pleaded that defendant actually knew that its
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COVID-19 test was not one hundred percent accurate when FDA
informed defendant of independent evaluation revealing
inaccuracy).
Generally, “management level” employees are sufficiently
senior to “serve as proxies” for the corporation's mental
state. Thomas v. Shiloh Indus., Inc., No. 15 Civ. 7449, 2017
WL 2937620, at *3, 3 n.1 (S.D.N.Y. July 7, 2017) (collecting
cases). To determine who constitutes a management-level
employee, courts consider “the individual's relative
seniority at the issuing entity and the connection between
the executive's role and the [challenged] statements.”
Barrett v. PJT Partners Inc., No. 16 Civ. 2841, 2017 WL
3995606, at *7 (S.D.N.Y. Sept. 8, 2017).
Further, “courts have held that a company's risk
disclosures are misleading in violation of Item 105 where the
‘risk factors’ reported in its Registration Statement had
already materialized by the time of its IPO . . . .” Felipe
v. Playstudios Inc., No. 22 Civ. 01159, 2024 WL 1380802, at
*13 (D. Nev. Mar. 31, 2024) (Item 105 violation pleaded when
risk factors warned that “game may be delayed” but did not
disclose that game developer faced “abnormally large number
of bugs” and risks had “already come to fruition”); see also
Lilien v. Olaplex Holdings, Inc., 765 F. Supp. 3d 993, 1019
(C.D. Cal. 2025) (Item 105 violation pleaded when risk
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disclosures “warned of the risk of new regulations affecting
[defendant’s] products without disclosing the E.U. ban on
[product ingredient]” had already materialized); cf. Sharma
v. Rent the Runway, Inc., 751 F. Supp. 3d 82, 118 (E.D.N.Y.
2024) (dismissing Item 105 claim when risk disclosures
included that the defendant company “‘in the past incurred’
losses” from warned-of risk).
Here, as discussed above, the CAC plausibly alleges that
material internet disruptions had occurred at the King
Mountain JV prior to the Merger and that King Mountain
Statement No. 4 failed to disclose that the risk had
materialized. The CAC, however, fails to plead that Hut 8,
Ho, Genoot, and Leverton had actual knowledge of the internet
problems, rather than that the problems were merely knowable.
The CAC alleges that, per CW 1, there were “often dips in the
network service with several outages and network failures”
and that outages of Bitcoin miners “were often significant
and caused by . . . offline miners.” (CAC ¶¶ 97-98.) Further,
CW 1 stated that Operations senior management directed data
analysts “to classify the outages in a manner that masked
their true nature,” such as by characterizing the miners as
“overheated” instead of offline, and that “over half, or more,
outages were falsely reclassified as overheated.” (Id. ¶ 99.)
The Court is not persuaded that one allegation pertaining to
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unidentified “senior management” without a further
explanation of the manager’s (or managers’) position within
USBTC and whether he or she (or they) had any involvement in
the challenged disclosures is sufficient to impute actual
knowledge to Hut 8. See Barrett, 2017 WL 3995606, at *7.
Although the CW 1 asserts that “Genoot also complained
about the efficiency of the King Mountain JV,” that allegation
is made within the CAC’s section on the King Mountain energy
problems and does not plausibly support that Genoot actually
knew that internet issues contributed to the inefficiency.
(CAC ¶ 94.) Likewise, the Short Seller Report’s generic
allegation that the King Mountain JV “has historically failed
to provide . . . high-speed internet” and allegations from a
separate proof of claim against a non-party filed in 2022 do
not support that any Defendant actually knew about King
Mountain JV’s network disruptions when King Mountain
Statement No. 4 was published. (Id. ¶ 116; see id. ¶¶ 117-
18.) See Glover v. DeLuca, No. 03 Civ. 0288, 2006 WL 2850448,
at *23 (W.D. Pa. Sept. 29, 2006) (“The Court declines to
accept as evidence of scienter an allegation made in a
separate lawsuit in another forum.”).
Accordingly, the Court GRANTS the Motion to Dismiss the
Securities Act Claims as to King Mountain Statements No. 4
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(Counts I and II), insofar as Lead Plaintiff failed to allege
that King Mountain Statement No. 4 violated Item 105.
D. COUNT I: SECTION 11 REMAINING ELEMENTS
The Court holds that the CAC has pleaded the remaining
elements of a Section 11 violation as to King Mountain
Statements Nos. 3-4: that Lead Plaintiff purchased a
registered security directly from the issuer or in the
aftermarket following the offering and that Hut 8, Ho, Genoot,
and Leverton participated in Hut 8’s offering in a manner
sufficient to give rise to liability under Section 11. See In
re Morgan Stanley, 592 F.3d at 359-60.
First, the CAC alleged that because “Hut 8 was newly
formed upon completion of the Merger, the only Hut 8 shares
available in the market at that time when Lead Plaintiff and
the Class acquired their shares . . . were shares issued
pursuant to the Registration Statement or the Forms S-8.”
(CAC ¶ 166.) “That is all that is required at this preliminary
stage.” Saskatchewan Healthcare Employee’s Pension Plan v. KE
Holdings Inc., 718 F. Supp. 3d 344, 391 (S.D.N.Y. 2024)
(collecting cases holding that at the pleading stage, Section
11 plaintiffs need only allege that they purchased shares
issued pursuant to or traceable to the public offering).
Second, the CAC adequately alleges that Hut 8, Ho,
Genoot, and Leverton participated in Hut 8’s offering in a
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manner sufficient to give rise to liability under Section 11,
since the CAC pleads that Hut 8 is the issuer; Ho signed the
Registration Statement and Forms S-8 and is identified as
prospective director of Hut 8 in the Registration Statement;
Leverton is identified as a prospective director of Hut 8 in
the Registration Statement; and Genoot signed the
Registration Statement and the Forms S-8. (See CAC ¶¶ 159-
162.) See 15 U.S.C. § 77k(a)(1), (3), (b); In re Morgan
Stanley, 592 F.3d at 359-60.
Accordingly, the Court DENIES the Motion to Dismiss
Count I as to King Mountain Statements Nos. 3-4.
E. COUNT II: SECTION 15
Section 15 of the Securities Act creates liability for
individuals or entities that “control[] any person liable”
under Sections 11 or 12. See 15 U.S.C. § 77o(a). To state a
claim for control person liability under Section 15, “a
plaintiff must allege [1] a primary violation by a controlled
person, and [2] control by the defendant of the primary
violator.” In re Scottish Re Grp., 524 F. Supp. 2d at 387
(internal quotation marks omitted).
Here, The Court has already determined that the CAC has
adequately pleaded a primary violation of Section 11 as to
King Mountain Statements Nos. 3-4. Thus, Lead Plaintiff may
succeed on the Section 15 claim if he can establish that all
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Individual Defendants controlled Hut 8, the primary violator.
(See CAC ¶ 170.)
Control for purposes of Section 15 is defined as “the
power to direct or cause the direction of the management and
policies of the [primary violators], whether through the
ownership of voting securities, by contract, or otherwise.”
In re Lehman Bros. Mortg.-Backed Sec. Litig., 650 F.3d 167,
185 (2d Cir. 2011) (internal quotation marks omitted). To
survive a Rule 12(b)(6) motion, “a plaintiff must plead facts
which support a reasonable inference that [defendants] had
the potential power to influence and direct the activities of
the primary violator.” In re Deutsche Telekom AG Sec. Litig.,
No. 00 Civ. 9475, 2002 WL 244597, at *7 (S.D.N.Y. Feb. 20,
2002) (internal quotation marks omitted). The “act of signing
a registration statement” is “a manifestation of the signer’s
responsibility for the information contained in the document
and, therefore, sufficient to establish ‘control person’
status” at the pleading stage. Fed. Hous. Fin. Agency v. UBS
Americas, Inc., 858 F. Supp. 2d 306, 333 (S.D.N.Y. 2012).
Here, the CAC alleges that Genoot and Ho signed each SEC
filing in which King Mountain Statements Nos. 3-4 appeared:
the Initial Registration Statement, each Amendment, and each
Form S-8, which incorporated the Prospectus by reference.
(See CAC ¶¶ 53, 55 58.)
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Accordingly, the CAC states a Section 15 violation as to
Genoot and Ho. Further, the CAC alleges that all Individual
Defendants had the power to direct Hut 8 and caused the
Company to violate Section 11 as described in Count I.
Specifically, the Individual Defendants were involved in the
daily activities of Legacy Hut or USBTC prior to the Merger
and Hut 8 following the Merger, including the due diligence
related to the Merger, and preparing and reviewing the
Registration Statement and the Forms S-8, the contents of
which the Individual Defendants had the power to control.
(See CAC ¶ 170.) “At the pleading stage, the Court considers
this sufficient.” Sharma, 751 F. Supp. 3d at 122 (denying
motion to dismiss Section 15 claim when complaint alleged
that individual defendants signed the registration statement;
had relationships with other directors, officers, and major
stockholders of the primary violator; and participated in the
preparation and dissemination of the challenged offering
documents). Further, apart from arguing that the Section 15
claim fails because the CAC does not state a Section 11 claim,
Defendants do not meaningfully address the Section 15 claim.
See Panther Partners Inc. v. Jianpu Tech. Inc., No. 18 Civ.
9848, 2020 WL 5757628, at *17 (S.D.N.Y. Sept. 27, 2020)
(denying motion to dismiss Section 15 claim when only grounds
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for dismissal argued were based on the purported failure of
Section 11 and 12 claims).
Accordingly, the Motion to Dismiss Count II as to King
Mountain Statements Nos. 3-4 is DENIED.
F. LEAVE TO AMEND
Lead Plaintiff has asked the Court to grant leave to
amend in the event the Court finds that the CAC contains
deficiencies. (See Opp’n. at 30.) When a cause of action is
dismissed because of pleading deficiencies, the usual remedy
is to permit repleading. See Fed. R. Civ. P. 15(a) (“The court
should freely give leave [to amend] when justice so
requires.”). When a claim is dismissed as a matter of law
because it fails to state a claim, however, repleading would
be “futile.” Lucente v. Int’l Bus. Mach. Corp., 310 F.3d 243,
258 (2d Cir. 2002) (“An amendment to a pleading is futile if
the proposed claim could not withstand a motion to dismiss
pursuant to Fed. R. Civ. P. 12(b)(6).”).
Here, because Lead Plaintiff lacks statutory standing
under Section 10(b) of the Exchange Act to challenge Financial
Statements Nos. 1-2 and 4 and King Mountain Statements
Nos. 2-4, the Court DENIES leave to replead Counts III and IV
as to those Statements. Moreover, the Court has determined
that Financial Statements Nos. 1-4 are inactionable as a
matter of law under both the Securities Act and the Exchange
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Act because they are forward-looking statements of opinion
accompanied by meaningful cautionary language. Moreover,
Financial Statement No. 4 cannot sustain a claim for
violation of Item 303 as a matter of law because the
challenged information was disclosed. Finally, King Mountain
Statement No. 1 is inactionable as a matter of law under both
the Securities Act and the Exchange Act because it is
corporate puffery. Hence, the Court DENIES leave to replead
Counts I-IV as to the Financial Statements and King Mountain
Statement No. 1.
The Court GRANTS, however, leave to replead Counts I-II
as to King Mountain Statement No. 2, as Lead Plaintiff could
plead facts showing that this Statement omits material
information with “sufficiently close nexus” to the content of
the Statement. In re Omega Healthcare, 563 F. Supp. 3d at
272.
Also, the Court GRANTS leave to replead Counts I-II as
to an Item 105 violation via King Mountain Statement No. 4,
as Lead Plaintiff could plead additional facts showing that
Defendants had actual knowledge of the alleged undisclosed
risk.
V. ORDER
For the reasons stated above, it is hereby
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ORDERED that the motion (Dkt. No. 52) (the “Motion”) of
defendants Hut 8 Corp. (“Hut 8”), Asher Genoot (“Genoot”),
Michael Ho (“Ho”), Jaime Leverton (“Leverton”), and Shenif
Visram (“Visram”, collectively, the “Defendants”) to dismiss
the consolidated amended complaint (Dkt. No. 39) (the
“Consolidated Amended Complaint”) of lead plaintiff Abhishek
Maheshwari (“Maheshwari”) pursuant to Federal Rule of Civil
Procedure 12(b)(6) is GRANTED as to Count III and Count IV in
their entirety; it is further
ORDERED that the Motion is GRANTED as to Count I and
Count II as to as to Financial Statements Nos. 1-4, King
Mountain Statements Nos. 1-2, and King Mountain Statement
No. 4 insofar as King Mountain Statement No. 4 is alleged to
violate 17 C.F.R. § 229.105(a) (“Item 105”); it is further
ORDERED that the Motion is DENIED as to Count I and Count
II as to King Mountain Statements Nos. 3-4; and it is further
ORDERED that leave to amend is GRANTED as to Count I and
Count II as to King Mountain Statement No. 2 and King Mountain
Statement No. 4, to the extent King Mountain Statement No. 4
is alleged to violate Item 105; it is further
ORDERED that leave to amend is DENIED as to all remaining
dismissed claims; and it is further
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ORDERED that Maheshwari is GRANTED leave to file an
amended consolidated complaint no later than fourteen (14)
days from the date of this Decision and Order.
SO ORDERED.
Dated: 12 September 2025
New York, New York
78