Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—E.D.N.Y.: Statements about lithium extraction success weren’t misleading; case dismissed, (Oct 6, 2025)

By Rebecca E. Hoffman, J.D.

The statements at issue did not convey the performance results that the defendants claimed they conveyed, but even if they did, the cited short-seller reports did not necessarily render the claims false.

The Eastern District of New York Sept. 28 dismissed a shareholder class complaint against Standard Lithium Ltd. and its principals, stemming from statements about performance at the company’s pilot lithium extraction plant, concluding—among other findings—that the defendants never said their plant had realized a 90 percent recovery rate or that it was producing 100-150 tons of lithium carbonate each year (Arata v. Standard Lithium Ltd., No. 1:22-cv-00507 (E.D.N.Y. Sept. 28, 2025)).

Standard Lithium, a Canadian company whose stock traded on the NYSE, built a plant in Arkansas where it engaged in a process called “LiSTR” whereby lithium is extracted from salt water and converted to lithium carbonate for use in lithium-ion batteries. The plant was commissioned as part of a joint venture arrangement with a German chemical company that owned lithium extraction rights in a region of Arkansas. Their deal was that if Standard Lithium were able to demonstrate “proof of concept,” the German company would fund the development of the LiSTR project.

In May 2020, the court explained, Standard Lithium’s press release said that work had begun at the plant, and that the LiSTR process “‘[v]astly increases recovery efficiencies to as much as >90%’” and that the plant could produce “‘between 100-150 [tons]” of lithium carbonate per year.’” The company’s December 2020 press release said that it had reached proof of concept, in that the plant had successfully extracted lithium from brine and rendered a product from which “‘better than battery quality lithium carbonate’” could be derived. This announcement and subsequent reports from financial advisors led to a substantial increase in the company’s share price.

In November 2021, short seller Blue Orca Capital reported that information Standard Lithium filed with the Arkansas Oil and Gas Commission belied its performance claims. For example, Blue Orca said that the recovery rate was actually 13 percent. Short seller Hindenburg Research’s report said that Standard Lithium had not achieved proof of concept and questioned the novelty of the LiSTR process. Both reports triggered a stock price decline. A shareholder representing those who purchased stock during the relevant period brought securities fraud claims against the defendants for overstating its production capabilities, misleading investors as to its “proof of concept” progress, and misrepresenting its technology as novel.

Recovery rate and production quota. As to the company’s purported claim that it had realized a 90 percent recovery rate and annual production of 100-150 tons, the court concluded that, in fact, Standard Lithium never made those claims. Rather, it was describing the potential recovery rate of the technology, based on laboratory tests, and was stating that the plant was designed to process brine at a rate that would ultimately translate to 100-150 tons of lithium carbonate. Other statements, such as that the operation of the plant was a “‘major advance,’” are nonactionable puffery, the court found.

Even if the defendants had claimed that the plant had achieved these rates, the plaintiff failed to show that such statements are false or misleading in the face of the short seller reports, even though Blue Orca calculated a 13 percent recovery rate. The plaintiff relies on both reports, which are “internally contradictory,” given that Hindenburg credits Standard Lithium’s claim that Blue Orca’s calculations “disregard vast quantities of lithium chloride that the Company had produced and reinjected back into the brine aquifer.,” the court explained.

Proof of concept. As to the company’s claims regarding proof of concept, the court found that “the Company had not defined ‘proof of concept’ with any precision before issuing the December release.” In that release, the concept was set forth as extracting the lithium, creating the intermediate compound, and converting that to lithium carbonate, which the defendants completed successfully. Further, the company’s announcement of an engineering firm’s favorable economic assessment contained sufficient cautionary language about the project’s valuation to fall within the PSLRA safe harbor.

The court also noted that Standard Lithium’s use of the word “novel” to describe its tech is not misleading. “[A] product can be novel without being novel enough to receive a patent,” it said. It was also not misleading to refer to its extraction process as “proprietary.”

Scienter. The court also determined that the plaintiff failed to raise an inference that the individual defendants acted with the requisite scienter. An assertion that the CEO, CFO, and COO’s motive to defraud investors was to bring in funds is insufficient; they would have to have a “concrete and personal benefit” from the deception. “[T]he need to raise capital and stave off a company’s collapse is the type of generalized motive that is insufficient to allege scienter,” the court said. And evidence of the executives’ knowledge of information that would tend to show their statements were false is not enough for the plaintiff to raise the strong inference of recklessness required in the absence of an adequate motive to defraud.

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

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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