Ryo Nakamura, individually and on behalf of all others similarly situated, Plaintiffv.BRF S.A., Pedro De Andrade Faria, Jose Antonio Do Prado Fay, Claudio Galeazzi, Jose Alexandre Carneiro Borges, Augusto Ribeiro Junior, Leopoldo Viriato Saboya and Helio Rubens Mendes Dos Santos Junior, Defendant
OPINION AND ORDERThe Complaint asserts securities fraud claims on behalf of a proposed class of shareholders. Two motions for appointment as lead plaintiff have been filed by purported class members. One motion is brought by the City of Birmingham Retirement and Relief System (“Birmingham”), a public pension fund that purchased and sold American Depository Receipts (“ADRs”) in defendant BRF S.A. (“BRF”) during the class period. It has made a showing that it incurred $749,857.61 in losses on those transactions. A separate motion is filed by ARS (BVI) Holding Ltd. (“ARS”) and Platinum International Wealth Corp. (“Platinum”) (collectively, the “Soares Group”), which are described as two Virgin Islands holding companies. Arlindo R. Soares is identified as the sole director and investor in ARS, and his brother, Nelson R. Soares, is identified as the sole director and investor in Platinum. The Soares Group claims an aggregate, combined loss of $879,276.97 on its transactions in BRF’s ADRS, consisting of $631,026.97 lost by Platinum and $248,250 lost by ARS.For the reasons that will be explained, the Court concludes that Birmingham has shown that it is best positioned to act as lead plaintiff and protect the interests of the class. The Soares Group, by contrast, has not satisfied its burden of showing that the aggregation of claims brought by two separate plaintiffs is appropriate in this case.Birmingham’s motion for appointment as lead plaintiff is therefore granted, and the law firm of Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) is appointed to act as lead counsel.BACKGROUND.This case is brought as a putative class action asserting claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. §240.10b-5. The proposed class consists of all persons who purchased or otherwise acquired shares of BRF between the dates of April 4, 2013 and March 2, 2018.BRF is alleged to be the world’s largest poultry exporter, with its headquarters in Brazil. Its ADRs trade on the New York Stock Exchange.The Complaint alleges that defendants materially misrepresented and omitted that BRF had bribed public officials in order to undermine food safety inspections and conceal unsanitary conditions at BRF’s meatpacking facilities. The Complaint alleges that defendants’ misstatements and omissions artificially inflated BRF’s stock price, which dropped when investors learned the truth about company practices and the increased risk of regulatory enforcement and prosecution in light of defendants’ alleged scheme.Five purported class members initially moved for appointment as lead counsel. After the moving papers were filed, three of the movants — Steven Trabish, John Smolen and a group consisting of BPRINT Investments LLC, Julio Almeida and Ryo Nakamura — withdrew their motions. (Docket # 26, 28, 31.) The only remaining motions to be decided are those filed by Birmingham and the Soares Group. (Docket # 20, 23.) Defendant BRF takes no position on the motions. (Docket # 27.)THE PSLRA’S LEAD PLAINTIFF PROVISIONS.The Private Securities Litigation Act of 1995 (the “PSLRA”) establishes a procedure for the appointment of a lead plaintiff. 15 U.S.C. §78u-4(a)(3). The lead plaintiff requirement is intended “to prevent lawyer-driven litigation” and ensure that plaintiffs with expertise in the securities markets control the litigation, as opposed to lawyers. In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157 (S.D.N.Y. 1997) (Cedarbaum, J.).The PSLRA provides that the district court “shall” appoint a lead plaintiff that it “determines to be most capable of adequately representing the interests of class members….” 15 U.S.C. §78u-4(a)(3)(B)(i). The PSLRA “requires a district court to appoint a person or persons to serve as lead plaintiff before proceeding with the adjudication of a private suit under the federal securities laws. Two objective factors inform the district court’s appointment decision: the plaintiffs’ respective financial stakes in the relief sought by the class, and their ability to satisfy the requirements of Rule 23.” Hevesi v. Citigroup Inc., 366 F.3d 70, 81 (2d Cir. 2004) (citing 15 U.S.C. §78u-4(a)(3)(B)(iii)(I)). Financial loss is the most important factor in weighing a plaintiff’s overall “financial stakes.” See Varghese v. China Shenghuo Pharmaceutical Holdings, Inc., 589 F. Supp. 2d 388, 395 (S.D.N.Y. 2008) (Marrero, J.).A court also must consider the rebuttal evidence, if any, submitted by a member of the purported class that the presumptive lead plaintiff will not fairly and adequately protect the class’s interests, or that the plaintiff is subject to unique defenses that render it incapable of adequately representing the class. 15 U.S.C. §78u-4(a)(3)(B)(iii)(II).DISCUSSION.A. The Soares Group’s Motion for Appointment as Lead Plaintiff Is Denied.The Soares Group asserts that it has lost $879,276.97 as a result of defendants’ alleged fraud, and has submitted charts reflecting transactions in BRF shares. (Stocker Dec. Exs. A, B.) ARS purchased 90,000 shares during the class period and Platinum purchased 316,000 shares. (Stocker Dec. Ex. B.) It appears that each entity has retained those shares. (See id.) ARS asserts that it has lost $248,250 as a result of defendants’ alleged fraud, and Platinum claims that it has lost $631,026.97. (Stocker Dec. Ex. B.) The Soares Group states that it satisfies the criteria of Rule 23 because its losses are typical of members of the proposed class and that its interests are aligned with the class in seeking maximum recovery for any losses incurred. (Docket # 21 at 7-8.)The text of the PSLRA provides that a “person or group of persons” may move for appointment as lead plaintiff. 15 U.S.C. §78u-4(3)(b)(iii)(I). The statute does not set criteria for what may properly constitute a “group.” See Varghese, 589 F. Supp. 2d at 392. Courts have recognized the grouping of plaintiffs “on a case-by-case basis, if such a grouping would best serve the class.” Id. “Factors that courts have considered when evaluating whether a group’s members will function cohesively and separately from their lawyers include evidence of: (1) the existence of a pre-litigation relationship between group members; (2) involvement of the group members in the litigation thus far; (3) plans for cooperation; (4) the sophistication of its members; and (5) whether the members chose outside counsel, and not vice versa.” Id.A proposed plaintiff group has the burden of showing that aggregation is appropriate. Int’l Union of Operating Engineers Local No. 478 Pension Fund v. FXCM Inc., 2015 WL 7018024, at *3 (S.D.N.Y. Nov. 12, 2015) (Wood, J.); accord Varghese, 589 F. Supp. 3d at 392. “The overarching concern is whether the related members of the group can function cohesively and effectively manage the litigation apart from their lawyers.” Int’l Union of Operating Engineers, 2015 WL 7018024, at *2. A plaintiff group should not be made lead plaintiff if it offers no evidentiary basis for aggregation or was “assembled as makeshift by attorneys” in order to claim the greatest financial interest. Varghese, 589 F. Supp. 2d at 392-93 (collecting cases); see also In re Tarragon Corp. Sec. Litig., 2007 WL 4302732, at *2 (S.D.N.Y. Dec. 6, 2007) (“there must be some evidence that the members of the group will act collectively and separately from their lawyers.”).The Soares Group’s moving papers did not include any submission on the appropriateness of grouping the two Soares entities — each separately owned and controlled by a different brother — together as a lead plaintiff. In its response papers, it filed a joint declaration of Arlindo and Nelson Soares. (Docket # 33-5.) Arlindo Soares states that he is the sole director of ARS, a holding company based in the Virgin Islands. (Joint Dec.2.) Nelson Soares states that he is the sole director of Platinum, also a Virgin islands-based holding company. (Joint Dec.3.) Both state that they have agreed to exercise joint decision-making authority as lead plaintiff and have “established procedures” for overseeing the litigation and communicating between one another and with counsel. (Joint Dec.9.) They state that they are motivated to jointly act as lead plaintiffs based on their “shared beliefs” in preventing securities fraud, that they understand that a lead plaintiff must function independently of the attorneys and that they will seek the largest possible recovery. (Joint Dec.
