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A federal judge has denied, in part, defendants' motions to dismiss a lawsuit accusing General Electric of misleading investors about certain aspects of its financial condition during the financial meltdown of 2008 and 2009, including its access to commercial paper markets and exposure to risky subprime loans. The State Universities Retirement System of Illinois is lead plaintiff in the case, which now moves to the discovery phase, giving attorneys from lead counsel Berman DeValerio an opportunity to further build their case by reviewing documents and taking depositions. The complaint filed by SURS, as the retirement system is known, claims that GE failed to properly disclose information to investors about its financial health and the health of GE Capital, its wholly owned subsidiary. In addition to GE, the lawsuit names Jeffrey Immelt, the company's CEO, and Keith Sherin, its CFO, as defendants, as well as members of GE's board of directors and 25 underwriters of GE's $12 billion October 2008 secondary stock offering. In his January 12 memorandum opinion and order, the Hon. Richard J. Holwell of the Southern District of New York sustained most of plaintiff's claims under the Securities Exchange Act of 1934 and some of its claims under the Securities Act of 1933. Judge Holwell also said certain dismissed claims could be resurrected if additional supporting evidence emerges in discovery. Significantly, from the plaintiff's point of view, the judge sustained the full alleged class period of September 25, 2008 through March 19, 2009. The complaint alleges that Immelt and Sherin made materially misleading statements during the class period and in connection with GE's October 2008 stock offering. Specifically, the complaint alleges GE misled investors about its access to commercial paper markets, despite CEO Immelt having privately confided in then-Treasury Secretary Henry Paulson that GE was having difficulty selling its commercial paper. Plaintiff also alleges that GE falsely assured investors that its full 2009 dividend was safe and that GE withheld information about GE Capital's substantial holdings in subprime and other non-investment-grade loans. All told, GE claimed that the company's position was "safe and secure" compared to competitors, though it was feeling the impact of the financial crisis all the while. On January 26, 2012, defendants moved for partial reconsideration of Judge Holwell's order. Attorneys for the lead plaintiff are currently drafting oppositions to these motions. Surviving the motions to dismiss is a key milestone in any securities class action, due to a series of heightened pleading standards imposed on investors by Congress and the Supreme Court beginning in the 1990s. The vast majority of lawsuits that reach the discovery phase result in recoveries for investors, whether through settlement or, in very rare instances, trial. The case is In re General Electric Co. Securities Litigation, 09 Civ. 1951 (S.D.N.Y.). Click here for a copy of the operative complaint or here for a copy of the judge's memorandum opinion and order. |