Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—N.D. Cal.: Lack of price impact rebuts Basic presumption, (Apr 24, 2026)

By Anne Sherry, J.D.

Corrective disclosures were a poor match to the alleged misstatement.

A district court in California denied class certification in an action against Li-ion battery maker Enovix. The investors’ complaint had been winnowed down to a single misrepresentation, and the alleged corrective disclosures were a mismatch to the misstatement. The defendants thereby rebutted the Basic presumption of class-wide reliance (In re Enovix Corp. Sec. Lit., No. 23-cv-00071 (N.D. Cal. Apr. 21, 2026)).

Lone misstatement. The second amended complaint alleged that Enovix conducted extensive testing on equipment that Enovix had commissioned for manufacturing a new type of Li-ion battery—and that the equipment passed neither of the two key quality control tests (the factory acceptance test, or “FAT,” and site acceptance test, “SAT”).

The surviving false or misleading statement was contained in an August 2021 shareholder letter. Discussing the qualification process for a new factory, Enovix stated, “The first step in this process is a site acceptance test to confirm the individual pieces of equipment are meeting performance requirements. This follows factory acceptance testing already performed at the vendor’s facility before taking delivery.”

The court agreed with the plaintiffs that if the equipment never passed the FAT, it was false and misleading for Enovix to state that the site acceptance test would “confirm” the equipment was meeting performance requirements and to state that the FAT was “already performed” without revealing that the equipment had failed the FAT.

Reliance. The defendants sought to rebut the Basic presumption of reliance by showing that this statement had no price impact.

After the Supreme Court held in Goldman Sachs Grp., Inc. v. Ark. Tchr. Ret. Sys., 594 U.S. 113 (2021) that courts must consider the generic nature of a misrepresentation in assessing price impact, the Second Circuit vacated class certification due to an insufficient link between the corrective disclosures and the alleged misrepresentations. The Second Circuit cautioned courts that under Goldman, any gap between the front-end misrepresentation and the back-end corrective disclosure must be minimal.

The California court noted that a close fit is especially required under an inflation-maintenance theory where plaintiffs provide indirect evidence that front-end inflation can be calculated by looking to the back-end price drop.

Here, there was a mismatch between the alleged misstatement and the identified corrective disclosures. The actionable statement concerned the defendants’ failure to reveal that the manufacturing equipment had not passed the FAT. The later “corrective” disclosures were about the failure of the new factory broadly, not about the manufacturing equipment specifically.

The “correction” in the second amended complaint that most closely matched the misrepresentation was not identified by the plaintiffs as a corrective disclosure. This November 2022 statement acknowledged manufacturing issues, the waiver of FAT, and that the company was “still paying for the months we gained and then gave back due to equipment problems.” On this statement, the stock price increased $1.11 per share over the previous trading day.

The court reasoned that the plaintiffs’ inflation-maintenance theory may explain why the stock price did not jump following the actionable misstatement, but it could not explain why the “correction” that called out the waiver of the FAT had no negative impact on Enovix’s stock price.

Because the plaintiffs were not entitled to the presumption of reliance, each plaintiff would have to prove reliance individually, and common issues would not predominate. Accordingly, the court denied the motion for class certification.

The case is No. 23-cv-00071.

Judge: Illston, S.

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