Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D. Ariz.: The amended complaint realleged the same misrepresentation, scienter claims to no avail, (Jul 24, 2026)

By Jay Fishman, J.D.

The claims were insufficiently supported by facts to overcome the PSLRA.

The Arizona District Court dismissed the class plaintiffs' fraud complaint, this time with prejudice, because they re-alleged the same claims and facts as before, which again failed to overcome Federal Civil Procedure Rule 9(b) and Private Securities Litigation Reform Act (PSLRA) burdens (Lew v. ON Semiconductor Corporation, No. 2:24-cv-00594-SMB (D. Ariz. July 23, 2026)).

The originally filed case. Before the class action period began, the defendant, a manufacturer and seller of automotive semiconductor products, would enter into short-term agreements with customers for products where delivery would often be delayed by a year due to Covid-19 pandemic-causing supply chain shortages. Because of the backlog, customers often placed product orders with multiple suppliers and upon receiving the product from one supplier would cancel their orders with the others. Meanwhile, the defendant, during the backlog periods, prepared quarterly reports for investors, detailing expected revenue and gross margins, which were released along with the company’s earnings announcements. Because the above-described customer behavior artificially inflated the demand for the products which, in turn, caused predictability issues for suppliers and manufacturers, the defendant company began using long-term supply agreements (LTSAs) to lock in purchase commitments over the term of the agreements; doing so was thought to curb the artificial market fluctuations by creating predictability in the supply chain. The use of LTSAs started in 2021 and coincided with the waning of Covid-19. The company’s 2022 Form 10-K financial statement, filed in February 2023, stated that the LTSAs would span an average of four to five years, add predictability to the purchase commitments and require customers to provide some offset for the lost sales if those orders were not achieved. Additionally, the company’s CEO repeatedly declared on financial statements at a various conference that the LTSAs were a “winwin” and were “take-or-pay” and “legally binding.”

Arizona’s District Court dismissed the lead plaintiff’s class action fraud complaint under Exchange Act Sections 10(b)/Rule 10b-5 and 20(a) because the plaintiff’s allegations were too general to overcome Federal Civil Procedure Rule 9(b) and Private Securities Litigation Reform Act (PSLRA) pleading standards. In granting the plaintiff leave to amend, the court cautioned plaintiffs’ counsel to distinguish affirmative misstatements of fact from material omissions and support each theory separately so that the court is not again “left putting together the pieces of Lew’s [lead plaintiff’s] puzzle as he hides under a cloud of vagueness and imprecision” (Lew v. ON Semiconductor Corporation, No. 2:24-cv-00594-PHX-SMB (D. Ariz. July 11, 2025)).

The second time around: dismissal for same reasons. For the most part, the court found that the plaintiff realleged the same claims and facts that were deficient as misrepresentations and failed to prove scienter. For example, the plaintiff realleged a core operations theory and holistic scienter theory. The court said the core operations theory is only viable assuming falsity exists for all the challenged statements. But as before, none of the challenged statements are actionable. Accordingly, the court proclaimed it would not repeat an in-depth analysis under the assumption that plaintiff established falsity. And, the court declared, the same is true for the plaintiff’s holistic scienter theory.

Because the primary claim failed, the Exchange Act Section 20(a) control person liability claim against the individual defendants also failed.

This case is No. 2:24-cv-00594-SMB.

Brnovich, S.

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