Plaintiffs Beat Inovalon Motion to Dismiss
On May 23, 2017, the Honorable Victor Marrero of the Southern District of New York issued a 25-page order denying in large part defendants’ motion to dismiss in Xiang v. Inovalon Holdings, Inc., No. 1:16-04923-VM (S.D.N.Y.).
Lead Plaintiff Roofers Local No. 149 Pension Fund alleges claims under §§11, 12(a)(2) and 15 of the Securities Act of 1933, all arising out of the false and misleading registration statement and prospectus (the “Registration Statement”) issued in connection with Inovalon Holdings, Inc.’s February 2015 initial public offering (“IPO”). Specifically, Lead Plaintiff alleges the Registration Statement failed to disclose that Inovalon derived significant revenues from New York-based customers and, as a result of recent New York tax law changes, would be subject to substantially increased taxes such that its earnings would be negatively impacted. And, at the time of the IPO, because Inovalon derived significant revenues from its New York-based business, defendants should have disclosed the material negative impact that the tax law changes would have on Inovalon’s continuing operations.
Among other favorable rulings, Judge Marrero rejected defendants’ statute-of-limitations arguments as “unavailing,” finding it “difficult to see how Lead Plaintiff could have foreseen the impact some of the disclosures Inovalon made [earlier] would have on the future of the company and its stock price sufficient to permit the pleading of the claims alleged.” Judge Marrero also rejected defendants’ argument that a 4% tax rate increase is immaterial as a matter of law, finding persuasive “Lead Plaintiff's argument that a relative change in the tax rate of over 10 percent should be considered a material misstatement [where, as here, it] is supported by the subsequent 30 percent drop in Inovalon’s stock prices after the disclosure of the tax rate increase.”
Xiang v. Inovalon Holdings, Inc., No. 1:16-cv-04923-VM (S.D.N.Y. May 23, 2017).