Walleye Attorney Grilled During Intelsat Insider-Trading Oral Argument

A 9th U.S. Circuit Appeals Court panel confronted the attorney for lead plaintiff-appellant Walleye Group with harsh questioning in oral argument Friday, asking where in the record there’s irrefutable evidence that five Intelsat defendants, including former Chairman David McGlade and several major shareholders, committed actionable insider trading under Section 9(b) of the Securities Exchange Act, as Walleye alleges. Judges Milan Smith, Andrew Hurwitz and Anthony Johnstone comprised the panel.

Walleye’s appeal seeks reversal of the district court’s April 2023 dismissal of its second amended insider-trading complaint (see 2304270005). The investment firm alleges the defendants sold more than $245 million of Intelsat stock at steep discounts in an after-hours private “block sale” after they learned in a Nov. 4, 2019, C-Band Alliance meeting with the FCC that the commission was going to reject Intelsat's “bet-the-company plan” for a private auction of C-band satellite spectrum, which Intelsat previously believed the FCC would support. The stock collapsed, and Intelsat filed for Chapter 11 bankruptcy protection in the months that followed.

The Nov. 4 meeting “went terribly,” and the Intelsat participants came away convinced that they weren’t going to get the “handshake deal” from then-FCC Chairman Ajit Pai that they previously had expected, said Walleye attorney Jake Bissell-Linsk of Labaton Keller. He cited confidential-witness testimony, bankruptcy testimony, board minutes and “other corroborating sources.”

Smith immediately interrupted, challenging Bissell-Linsk to cite testimony in the record showing that the meeting went terribly, when in fact, said the judge, the meeting was "inconsequential." It appeared that all that Bissell-Linsk had to go on was testimony from nonparticipants about the negative “body language” of the FCC lawyers in the room, the judge said. Bissell-Linsk conceded “there’s no record” showing that the Intelsat participants “were told absolutely” in the meeting that the private auction they wanted wouldn’t happen.

Assuming Intelsat emerged from the meeting convinced that the FCC was going to reject the private auction, Johnstone challenged Bissell-Linsk to provide “the who, what, where, when, how” of the communication of that negative information to the defendants, who that evening allegedly acted on that information to sell their Intelsat shares in the private block sale. The lawyer responded: “There’s no question at all that we do not at this stage in the case in the record have the smoking-gun evidence of exactly when they were told.”

That prompted Smith to ask: “You not only don’t have the smoking-gun evidence, but isn’t it fair to say you have no evidence?” Bissell-Linsk replied that “we have very strong circumstantial evidence.”

The plaintiffs’ argument “is very much an inference, and it is not just the timing of the trade as an inference,” said Bissell-Linsk. “It is the entirety of the circumstances. It’s the importance of this deal to the company.” It’s also “the fact” that there was “a sense” that the FCC had made “a 180-degree reversal” in its stance toward the private auction, he said. “It’s the fact that the trade occurred that same day,” he said. “It’s that a very large quantity of shares were sold in an urgent, aftermarket block trade at a steep discount.” In answering a question from Johnstone, Bissell-Linsk conceded he was unable to say with certainty whether the hurried nature of the block trade was “inconsistent” with that of previous Intelsat stock transactions.

The plaintiffs “have not come close” to meeting the Private Securities Litigation Reform Act requirements “for pleading material nonpublic information or scienter,” countered Melanie Blunschi of Latham & Watkins, counsel for defendant BC Partners, one of Intelsat’s two largest shareholders, alongside Silver Lake. “On top of that,” said Blunschi, the plaintiffs also haven’t met the requirements for “statutory standing because they do not even allege that they traded in the block trade” with the defendants.

The plaintiffs lack any “particularized factual allegations” to show that McGlade had possession of any material nonpublic information, let alone that he dumped shares based on that information, argued the former Intelsat chairman’s attorney, Evan Seite of Wilson Sonsini. That was one of the bases of the district court’s dismissal, said Seite: “The starting point for a conversation of a viable complaint is some particularized fact to show a communication between someone in the know and Mr. McGlade. That we don’t have.”