Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—S.D. Cal.: Court dismisses securities fraud action against developer of early cancer detection test, (Sep 29, 2025)

By Kristin J. Angelino, J.D.

Plaintiffs failed to link corrective disclosures with defendants’ alleged prior misstatements.

Shareholders of Illumina, Inc. failed to adequately plead that the company and its executives violated Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 thereunder, by deceiving them during an acquisition of the company’s GRAIL subsidiary. In dismissing the purported class action complaint, without prejudice, the Southern District of California ruled that plaintiffs failed to adequately plead loss causation under Section 10(b) and Rule 10b-5(b) because they failed to show that defendants’ alleged misstatements caused the declines in the company’s stock price. Consequently, plaintiff’s claims under Rules 10b-5(a) and (c) and Section 20(a) were also dismissed (In re Illumina, Inc. Securities Litigation, No. 3:23-cv-02082 (S.D. Cal. Sept. 26, 2025)).

Defendant Ilumina, Inc. is a biotech company that makes and sells DNA sequencing platforms used in numerous medical applications, giving Illumina control over 80 percent of the gene sequencing market. Illumina’s subsidiary, GRAIL, LLC, developed a multi-cancer-early-detection (MCED) test (later called “Galleri”) that aimed to identify multiple cancer types from a single blood draw. After GRAIL underwent numerous funding rounds, which brought it to a rumored market value of $4 billion, it began to pursue an IPO. However, on September 21, 2020—the first day of plaintiff’s class period—Illumina announced that it would reacquire GRAIL for over $8 billion. Plaintiffs allege that, during this time, defendants made several false and misleading statements designed to reassure investors that acquiring GRAIL was a good investment. As a result, Illumina’s stock price nearly doubled from September 2020 to August 2021.

Illumina completed the acquisition on August 18, 2021, despite being subject to a “standstill” as a result of concerns expressed by the U.S. Federal Trade Commission and the European Commission that the acquisition would give Illumina a “near-monopoly” on the technology relied on by the MCED industry. According to plaintiffs, the closing of the deal set off a string of more surprising “disclosures concerning or connected to the facts misrepresented or concealed by [dD]efendants” and caused Illumina’s stock to plunge by 80% through November 9, 2023—the end of the class period.

Plaintiffs sued Illumina, Grail and numerous executives of both companies, alleging violations of (1) Section 10(b) and Rule 10b-5(b) against all defendants, except GRAIL’s director Richard B. Klausner; (2) Section 10(b) and Rule 10b-5(a) and (c) against all defendants; and (3) Section 20(a) against all executives. Defendants moved to dismiss, arguing that plaintiffs failed to adequately plead a material misrepresentation or omission, scienter or loss causation under Section 10(b) and Rule 10b-5(b), each of which are independent dismissal grounds.

Loss causation. The court first examined loss causation. Plaintiffs alleged that the “causal connection” between defendants’ alleged fraud and the decline of Illumina’s stock price was nine corrective disclosures issued by the company between 2021 and 2023. The court stated that plaintiffs essentially argued a “fraud-on-the-market” theory and therefore they must trace any losses “back to the very facts about which the defendant lied.” Plaintiffs failed to do this, however, because they failed to specify which misrepresentations each of the nine disclosures supposedly corrected, thereby forcing defendants and the court to conduct an “inappropriate” exercise of “connect-the-dots.” Therefore, the court held that their first claim under Section 10(b) and Rule 10b-5(b) must be dismissed.

Scheme liability. Plaintiffs second claim is for defendants’ alleged scheme to defraud investors under Section 10(b) and Rule 10b-5(a) and (c). However, according to the court, plaintiff’s scheme liability claim is “basically a duplicate of their first fraud claim under Rule 10b-5(b)” since the alleged scheme “consists entirely of” the allegations underlying plaintiff’s first claim. Therefore, the court held that it failed for the same reasons and must be dismissed.

Section 20(a). Since plaintiffs failed to sufficiently plead a primary violation of federal securities law, the court held that plaintiff’s Section 20(a) claims against the executives of GRAIL and Illumina also must be dismissed.

The case is No. 3:23-cv-02082.

Judge: Lopez, L.

Attorneys: Alec T. Coquin (Bernstein Litowitz Berger & Grossmann LLP) for Universal-Investment-Gesellschaft MbH and Acatis Investment Kapitalverwaltungsgesellschaft MbH. Brian M. French (Cooley LLP) for Illumina, Inc. Colleen Carlton Smith (Latham And Watkins LLP) for Grail, LLC.

Companies: Illumina, Inc.; Grail, LLC

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