Intelsat Is ‘Quintessential Insider Trading Case’: Second Amended Complaint

Multiple allegations “strongly support” the conclusion that defendants in the litigation involving accusations of insider trading of Intelsat stock knew of and possessed material nonpublic information (MNPI) “at the time they traded,” said lead plaintiff Walleye Group in its second amended class action Monday (docket 4:20-cv-02341) in U.S. District Court for Northern California in Oakland.

U.S. District Judge Jeffrey White’s Sept. 29 order said Walleye failed to “sufficiently allege” the defendants engaged in insider trading but granted it leave to amend the complaint (see 2210250016). Walleye also failed to allege “sufficient facts” to show the defendants acted with scienter, meaning they knew of their wrongdoing, his order said.

This is “the quintessential insider trading case,” said the second amended complaint. Intelsat was successfully pursuing a “bet-the-company-deal” with the FCC over C-band spectrum. Its chairman, defendant David McGlade, and its two largest shareholders, defendants BC Partners and Silver Lake, sold $246 million in stock “the very same day they learned the FCC was turning against the deal,” it said.

Walleye’s lawsuits alleged Intelsat CEO Stephen Spengler and other C-Band Alliance members met with FCC officials to discuss the status of previous plans to auction off C-band spectrum privately, which the C-Band Alliance proposed and advocated. During a Nov. 5, 2019, meeting with then-FCC Chairman Ajit Pai’s senior counsel Nicholas Degani, there was confirmation the FCC was moving away from the alliance’s proposal. Soon after, the defendants sold their $246 million in stock through a private block sale conducted by Morgan Stanley, Walleye alleged.

The defendants’ possession of the MNPI while trading the Intelsat stock “demonstrates their scienter,” said the second amended complaint. The “timing and the circumstances” of their trades “strongly supports the inference” that the defendants had the MNPI at the time of their transactions, it said. The sales occurred just hours after the FCC meeting, it said. “The most obvious inference” is that the defendants “learned the bad news and then immediately took action to dump their shares,” it said.

The trades were done “in a manner that prioritized speed,” said the second amended complaint. “The shares were urgently shopped after hours at a significant discount to the day’s closing market price,” it said. Morgan Stanley brokered the deal with no advance warning the sale was coming, and interested buyers were told they had an hour or so to decide, it said. “The speed at which these insiders offloaded their shares further supports the conclusion that this was a desperate sell before the bad news (which they knew about) became public and the stock price collapsed.”

That the transactions involved three separate insiders working as a group “strengthens the suspicious nature of the trading,” said the second amended complaint. The behavior undermines “alternative explanations for the timing of the trade," and also supports "the inference the information was being shared amongst the insiders,” it said.

Walleye and other members of the proposed class suffered economic loss under the federal securities laws, said the second amended complaint. The defendants traded Intelsat common stock while in possession of MNPI, it said: “Later, as the information became publicly known -- and as the risks hidden by Defendants’ omissions manifested into negative events – the price of Intelsat common stock declined sharply as a result of such disclosure.”

The prior amended complaint was filed more than 20 months ago, Walleye told the judge, and “substantial developments concerning Intelsat, including lengthy bankruptcy proceedings, have occurred since then.” As such, the second amended complaint draws heavily from bankruptcy court transcripts.

In one such citation, Intelsat’s CEO testified that before the Nov. 5, 2019, meeting he felt he had a “soft commitment” from the FCC to back the private auction, but he was “worried coming out of this meeting that the FCC was going to reject the market-based approach.” Bankruptcy filings have “further confirmed the substantial real-time communications that occurred between Intelsat’s senior insiders,” said the second amended complaint.

“As of the filing of this complaint, Intelsat remains in bankruptcy,” said the second amended complaint. Intelsat’s stock was delisted from the New York Stock Exchange, and its shares are trading over the counter at around 60 cents, it said. That compares with its closing price of $26.33 “on the day the insiders made their trades -- a staggering decline of more than 97%.”

Walleye believes “substantial additional evidentiary support exists for the allegations” of insider trading, said the second amended complaint. The evidence will be revealed after Walleye “has a reasonable opportunity to conduct discovery and complete its investigation,” it said.