Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—E.D.N.Y.: Complaint dismissed against Canadian lithium extraction company, (Sep 29, 2025)

By R. Jason Howard, J.D.

The complaint failed to adequately allege the falsity of the asserted misrepresentations and omissions.

The Eastern District of New York has dismissed a putative class action lawsuit brought against Standard Lithium and several of its officers for allegedly making false and misleading statements about the status of its pilot lithium extraction plant in Arkansas (Arata v. Standard Lithium Ltd., No. 1:22-cv-00507-EK-VMS (E.D.N.Y. Sept. 28, 2025)).

Standard Lithium. Standard Lithium is a Canadian company whose shares trade on the TSX Venture Exchange in Canada and the NYSE American Exchange. The company has attempted to commercialize a process for extracting lithium from salt water and refining it into lithium carbonate, for use in various products such as lithium-ion batteries.

In 2019, Standard Lithium built a pilot lithium extraction plant in Arkansas. The plant began operations in May 2020. Throughout 2020 and 2021, the company described, in press releases and financial statements, the successful operations of the plant and the novel nature of the lithium-extracting technology implemented there.

Allegations. The plaintiff asserted that Standard made false and misleading statements about operations at the Arkansas plant and cited to reports published by a short seller called Blue Orca Capital and another short seller called Hindenburg Research alleging that Standard Lithium overstated the progress of operations at the Arkansas plant and the viability of its technology. Standard's shares fell 19 percent and 27 percent following each report.

The complaint asserted two causes of action under the Securities Exchange Act of 1934. First, a violation of Section 10(b) and Rule 10b-5 against all defendants, and second, a violation of Section 20(a)—which establishes controlling-person liability against the individual defendants.

Complaint. The court explained that the complaint relied extensively on statements from the two short-seller reports and noted that a publishing short seller will have an “obvious motive to exaggerate the infirmities of the securities” at issue, given its financial interest in the security’s price declining.

The court further explained that the alleged misrepresentations fell into four main categories: (1) statements about the recovery rates and production capabilities of Standard Lithium’s technology, (2) statements about the Demonstration Plant’s achievement of “proof of concept” for lithium extraction, (3) statements about the scalability and commercial viability of the LiSTR extraction process, and (4) statements describing LiSTR as “novel,” “proprietary,” and “protected by a series of patent applications.

The court addressed each in turn and found that the plaintiff failed to adequately support his allegations, and his challenges failed under the PSLRA safe harbor and the bespeaks-caution doctrine. In addition, the plaintiff failed to adequately allege a specific motive to defraud investors and did not allege that the individual defendants realized any concrete and personal benefit from the alleged fraud.

Ruling. The defendants moved to dismiss the complaint and argued that the complaint failed to adequately allege the falsity of the asserted misrepresentations and omissions, the scienter of the individual defendants, or loss causation. The court dismissed the action and closed the case.

The case is No. 1:22-cv-00507-EK-VMS.

Judge: Komitee, E.

Attorneys: Gregory B. Linkh (Glancy Prongay & Murray LLP) for Curtis T. Arata. Alex Drylewski (Skadden, Arps, Slate, Meagher & Flom LLP) for Standard Lithium Ltd.

Companies: Standard Lithium Ltd.

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