Caption: Levy v. Jason Luo, et al.
Case No.: 23-653-GBW
Jurisdiction: U.S. District Court, District of Delaware
Judge: Hon. Gregory B. Williams
Summary
On December 5, 2025, Judge Gregory B. Williams adopted in part and rejected in part a Report and Recommendation regarding motions to dismiss in the securities class action involving Electric Last Mile Solutions, Inc. (ELMS). The Court granted the motions to dismiss filed by individual defendants Jason Luo, James Taylor, Albert Li, Marshall Kiev, and David Boris. The Court granted in part and denied in part the motion filed by the auditor, BDO USA, LLP.
Allegations Against ELMS Executives and Auditor
Plaintiff alleged securities law violations in connection with a private investment in public entity (PIPE) offering related to the June 2021 merger between FIII, a special purpose acquisition company, and Electric Last Mile, Inc. (ELM). The complaint asserted that defendants made misrepresentations regarding equity transactions where insiders received stock at values substantially below fair market value. Plaintiff claimed the Proxy Statement failed to disclose this compensation and contained misleading financial statements audited by BDO. Specifically, the complaint alleged BDO misrepresented that ELM's financials and its audit complied with Generally Accepted Accounting Principles (GAAP) and Public Company Accounting Oversight Board (PCAOB) standards.
Defendants’ Motion to Dismiss
The defendants, including former executives and the auditor, moved to dismiss the claims. The Magistrate Judge recommended dismissal of claims against the individual defendants on grounds that the complaint failed to allege they were makers of the statements or lacked the necessary scienter. BDO argued that its audit opinion was not an actionable statement under the securities laws.
Plaintiffs’ Opposition
Plaintiff objected to the Magistrate Judge's recommendation, arguing that the BDO audit constituted an actionable statement. Plaintiff further contended that the complaint sufficiently alleged that executives Luo, Taylor, and Li were makers of the misleading statements in the Proxy. Additionally, Plaintiff argued that the allegations supported a finding of scienter against directors Boris and Kiev.
Court’s Ruling
The Court sustained Plaintiff's objection regarding the BDO audit, allowing that claim to proceed. However, the Court overruled Plaintiff's objections regarding the individual defendants. Consequently, the claims against Luo, Taylor, Li, Boris, and Kiev were dismissed. The derivative Section 20(a) claims against these individuals were also dismissed because the predicate Section 10(b) claims failed.
Court’s Rationale
Actionable Opinions: The Court held that BDO's audit report constituted an opinion subject to the Omnicare standard. The Court found Plaintiff sufficiently alleged that BDO did not sincerely hold its stated belief. The complaint alleged particular facts that BDO knew auditing standards required assessment of related-party transactions yet failed to comply with those standards.
Maker of Statements: The Court affirmed that only the maker of a statement, defined as the person with ultimate authority over it, can be held liable under Section 10(b). Plaintiff failed to identify with particularity which specific statements were made by Luo, Taylor, or Li. The Court rejected the argument that corporate insiders are automatically makers of statements in a Proxy simply due to their management roles.
Scienter: The Court found the complaint failed to allege facts showing Boris or Kiev made reckless statements. Allegations that they should have known about the financial discrepancies were insufficient. Furthermore, the Court ruled that generalized motives regarding financial gain from the merger did not independently establish scienter.
Case Status
The Court granted Plaintiff leave to file a second amended complaint within 14 days to remedy the identified deficiencies. If Plaintiff chooses not to amend, the parties must update the Magistrate Judge regarding the remaining issues with BDO's motion.
