Million v. Lottery.com, Inc. et al

Filing 131

OPINION AND ORDER re: 111 MOTION to Dismiss The Amended Class Action Complaint. filed by Kathryn Lever, 85 MOTION to Dismiss Plaintiffs' Amended Class Action Complaint. filed by Anthony DiMatteo, 115 MOTION to Dismiss / Notice of Motion to Dismiss Plaintiffs' Amended Complaint. filed by Vadim Komissarov, 88 MOTION to Dismiss Harold M. Hoffman's Complaint. filed by Anthony DiMatteo, 93 MOTION to Dismiss the Harold Ho ffman Complaint. filed by Matthew Clemenson, Ryan Dickinson, 76 MOTION to Dismiss The Amended Class Action Complaint. filed by Lottery.com, Inc., 91 MOTION to Dismiss Class Action Complaint. filed by Matthew Clemens on, Ryan Dickinson, 80 MOTION to Dismiss Plaintiff Harold M. Hoffman's Original Complaint. filed by Lottery.com, Inc. For the foregoing reasons, the Amended Class-Action Complaint and the Hoffman Complaint are DISMISSED with lea ve to amend within twenty-one (21) days of this opinion and order. The Clerk of Court is respectfully directed to terminate the pending motions at ECF Nos. 76, 80, 85, 88, 91, 93, 111, and 115. SO ORDERED. (Signed by Judge Jennifer L. Rochon on 2/6/2024) (jca)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE LOTTERY.COM, INC. SECURITIES
LITIGATION

Case No. 1:22-cv-07111 (JLR)
OPINION AND ORDER

JENNIFER L. ROCHON, United States District Judge:
This consolidated case involves two federal securities-fraud lawsuits brought against
ten defendants.
In the first lawsuit, RTD Bros LLC, Todd Benn, Tom Benn, Tomasz Rzedzian, and
Preston Million (collectively, the “Class Plaintiffs”) bring a putative class action against
Lottery.com, Inc. (“Lottery”) formerly known as Trident Acquisitions Corp. (“Trident”),
Anthony DiMatteo (“DiMatteo”), Matthew Clemenson (“Clemenson”), Kathryn Lever
(“Lever”), Ryan Dickinson (“Dickinson”), Marat Rosenberg (“Rosenberg”), Vadim
Komissarov (“Komissarov”), Thomas Gallagher (“Gallagher”), Gennadii Butkevych
(“Butkevych”), and Ilya Ponomarev (“Ponomarev”). ECF No. 52 (the “Amended ClassAction Complaint” or “Class Compl.”). 1
The Amended Class-Action Complaint asserts four causes of action. First, the Class
Plaintiffs allege that Lottery, DiMatteo, Clemenson, Lever, Dickinson, Rosenberg,
Komissarov, Gallagher, Butkevych, and Ponomarev (collectively, “Defendants”) violated
Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C.
§ 78j(b) (“Section 10(b)”), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5

1

All citations to “ECF” refer to the docket for Case No. 1:22-cv-07111. All citations to
“Hoffman ECF” refer to the docket for Case No. 1:22-cv-10764. Except for the parties’
briefs, all citations herein to the page numbers of documents filed by the parties refer to the
ECF-provided page numbers, not to internal pagination.
1

(“Rule 10b-5”). Id. ¶¶ 170-174 (“Class Claim I”). Second, the Class Plaintiffs allege that all
Defendants except Lottery (the “Individual Defendants”) violated Section 20(a) of the
Exchange Act, 15 U.S.C. § 78t(a) (“Section 20(a)”), as controlling persons with respect to the
conduct underlying Claim I. Id. ¶¶ 175-178 (“Class Claim II”). Third, the Class Plaintiffs
allege that Defendants violated Section 14(a) of the Exchange Act, 15 U.S.C. § 78n(a)
(“Section 14(a)”), and Rule 14a-9 promulgated thereunder, 17 C.F.R. § 240.14a-9 (“Rule 14a9”). Id. ¶¶ 179-182 (“Class Claim III”). Fourth, the Class Plaintiffs allege that the Individual
Defendants violated Section 20(a) as controlling persons with respect to the conduct
underlying Claim III. Id. ¶¶ 183-188 (“Class Claim IV”). The Class Plaintiffs define the
“Class Period” as “the period from November 19, 2020 through July 29, 2022, inclusive.” Id.
¶ 1.
Six Defendants – Lottery, DiMatteo, Clemenson, Dickinson, Lever, and Komissarov –
have moved to dismiss the Amended Class-Action Complaint under Federal Rule of Civil
Procedure 12(b)(6) (“Rule 12(b)(6)”). ECF Nos. 77 (“Lottery Class Br.”), 86 (“DiMatteo
Class Br.”), 92 (“C&D Class Br.”), 112 (“Lever Br.”), 116 (“Komissarov Br.”); see also ECF
Nos. 95 (“Lottery Class Opp.”), 96 (“DCD Opp.”), 98 (“Lottery Class Reply”), 100 (“C&D
Class Reply”), 102 (“DiMatteo Reply”), 118 (“Lever Opp.”), 119 (“Komissarov Opp.”), 121
(“Komissarov Reply”), 122 (“Lever Reply”). Four other Defendants – Rosenberg, Gallagher,
Butkevych, and Ponomarev – have not been served.
In the second lawsuit, Harold M. Hoffman (“Hoffman”), an attorney proceeding pro
se, brings an individual action against Lottery, DiMatteo, Clemenson, and Dickinson.
Hoffman ECF No. 1 (the “Hoffman Complaint” or “Hoffman Compl.”). Hoffman raises two
claims. First, Hoffman alleges that Lottery, DiMatteo, Clemenson, and Dickinson violated
Section 10(b) and Rule 10b-5. Id. ¶¶ 53-62 (“Hoffman Claim I”). Second, Hoffman alleges
2

that DiMatteo, Clemenson, and Dickinson violated Section 20(a) as controlling persons with
respect to the conduct underlying Hoffman Claim I. Id. ¶¶ 63-68 (“Hoffman Claim II”).
Lottery, DiMatteo, Clemenson, and Dickinson have moved to dismiss the Hoffman
Complaint. ECF Nos. 81 (“Lottery Hoffman Br.”), 89 (“DiMatteo Hoffman Br.”), 94 (“C&D
Hoffman Br.”); see also ECF Nos. 97 (“Hoffman Opp.”), 99 (“Lottery Hoffman Reply”), 101
(“C&D Hoffman Reply”); DiMatteo Reply.
For the following reasons, the motions to dismiss the Amended Class-Action
Complaint and the Hoffman Complaint are granted. But the Court grants the Class Plaintiffs
and Hoffman (collectively, “Plaintiffs”) leave to amend their complaints.
BACKGROUND
I.

Factual Allegations
Because this case is at the motion-to-dismiss stage, the Court assumes that the

complaints’ factual allegations are true and construes them in the light most favorable to the
respective plaintiffs. See New Eng. Carpenters Guaranteed Annuity & Pension Funds v.
DeCarlo, 80 F.4th 158, 168 (2d Cir. 2023).
As previously noted, this case features two consolidated lawsuits. Consolidation “does
not merge the suits into a single cause, or change the rights of the parties, or make those who
are parties[] in one suit parties in another.” MacAlister v. Guterma, 263 F.2d 65, 68 (2d Cir.
1958) (quoting Johnson v. Manhattan Ry. Co., 289 U.S. 479, 496-97 (1933)). Thus, the Court
will not credit the Hoffman Complaint with allegations contained solely in the Amended
Class-Action Complaint, and vice versa. Nevertheless, for the sake of telling this story only
once, the Court will tell it in full, relying primarily on the longer and more detailed Amended
Class-Action Complaint.

3

A. Introduction to SPACs
To appreciate the potential significance of the alleged events, one must understand
several aspects of a particular type of corporate entity: the special-purpose-acquisition
corporation (the “SPAC”). Ordinarily, a privately held corporation becomes a publicly traded
corporation through an initial public offering (an “IPO”), a process entailing various legal
requirements and associated expenses. See 1 Thomas Lee Hazen, Law Sec. Reg. (“Hazen”)
§ 3:2 (Westlaw database updated Nov. 2023) (overview of the traditional registration
process). SPACs offer another route for a private company to go public.
“The creation of a SPAC begins with a sponsor forming a corporation and working
with an underwriter to take the SPAC public in an IPO.” Michael Klausner, Michael
Ohlrogge & Emily Ruan, A Sober Look at SPACs, 39 Yale J. on Regul. 228, 236 (2022)
(“Klausner et al.”). “Nominally, the SPAC is managed by its own officers and directors, who
are selected by the sponsor. Those officers and directors typically overlap with the
individuals who own and created the sponsor, and the compensation of the SPAC’s officers
and directors typically aligns their interests with those of the sponsor.” Id. Following its IPO,
a SPAC has “no business activities” except seeking “to acquire an existing [privately]
operating company,” thus allowing the private company to become a public company without
conducting an IPO. Class Compl. ¶ 40. “The capital from the SPAC’s initial public offering
. . . is held in trust for a specific period of time to fund the acquisition.” Id. “SPACs usually
have an 18-to-24-month period to find an acquisition target and completion of the SPAC
business combination.” 1 Hazen § 3:58. The resulting business combination “is often
referred to as a de-SPAC transaction.” Id.
“If a merger or acquisition is successfully made within the allocated time frame,
founders and managers of the SPAC can profit through their ownership of the SPAC’s
4

securities (typically about 20% of the SPAC’s stock, in addition to warrants to purchase
additional shares).” Class Compl. ¶ 41. But “if an acquisition is not completed within that
time frame, then the SPAC is dissolved and the money held in trust is returned to investors
with no compensation paid to the founders and managers of the SPAC, whose SPAC
securities expire worthless.” Id.; accord Klausner et al., supra, at 237 (“If the SPAC does not
merge within the period provided for in the charter (or have its shareholders vote to extend its
life by a few months), the SPAC must liquidate and distribute the funds in the trust to its
public shareholders. In the event of a liquidation, the sponsor loses its investment.”).
Plaintiffs contend that, as a result, “the founders and management team of a SPAC are highly
incentivized to complete an acquisition within their deadline, even if the benefits of that
transaction for the public shareholders of the SPAC are dubious.” Class Compl. ¶ 41.
“Typically, common stockholders of a SPAC are granted voting rights to approve or
reject the business combination proposed by the management team.” Id. ¶ 43. “Thus, when
the management team identifies a target, a proxy statement must be distributed to all SPAC
stockholders, which includes the target company’s financial statements and the terms of the
proposed business combination.” Id. “Public stockholders in SPACs rely on management of
the SPAC and the target company to honestly provide accurate information about any
contemplated transactions.” Id.
B. Formation of Trident and Early Efforts to De-SPAC
Trident was a SPAC incorporated in Delaware on March 17, 2016. Id. ¶ 46. Trident
filed its IPO prospectus (dated May 29, 2018) with the Securities and Exchange Commission
(the “SEC”) on May 30, 2018. Id. ¶ 47; Trident Acquisitions Corp., Prospectus (Form 424B4)
(May 29, 2018) (the “IPO Prospectus”), https://www.sec.gov/Archives/edgar/data/1673481/
000161577418004472/s110477_424b4.htm [https://perma.cc/98JY-L5CK]; see 17 C.F.R.
5

§ 230.424(b)(4). In the IPO Prospectus, Trident stated that it “intend[ed] to focus [its] efforts
on seeking a business combination with an oil and gas or other natural resources companies in
Eastern Europe or interested in expanding into Eastern Europe.” Class Compl. ¶ 49 (brackets
in original; emphasis omitted). The IPO Prospectus also reported that seven people served as
officers and/or directors of Trident, including four of the Individual Defendants: Ponomarev
(chief executive officer (“CEO”) and director), Komissarov (president, chief financial officer
(“CFO”), and director), Gallagher (director), and Butkevych (director). Id. ¶ 50; IPO
Prospectus at 69. The IPO Prospectus “repeatedly touted” Ponomarev and other officers as
“experienced in the energy industries and working in Eastern Europe.” Class Compl. ¶ 50.
On June 1, 2018, Trident completed the IPO of 17,500,000 units. Id. ¶ 47. Each unit
“consist[ed] of one share of common stock and one warrant entitling its holder to purchase
one share of common stock at a price of $11.50 per share.” Id. Trident also granted the IPO’s
underwriters an option to purchase up to 2,625,000 additional units to cover possible overallotments; the underwriters exercised that option in full on June 4, 2018. Id. In total, Trident
issued a total of 20,125,000 units at a price of $10.00 per unit, resulting in total gross proceeds
of $201,250,000 from the IPO. Id. ¶ 48. Trident’s units began trading on the NASDAQ on
May 30, 2018, and its common stock and warrants began separately trading on the NASDAQ
on June 13, 2018. Id. ¶ 47. On June 5, 2018, Trident deposited the proceeds from the IPO –
along with the proceeds from a private placement of an additional 1,150,000 units at a price of
$10.00 per unit – in a trust account for the purpose of funding a business combination. Id.
¶ 48 & n.5.
Under its amended and restated certificate of incorporation, Trident initially had until
December 1, 2019, to complete a de-SPAC transaction. Id. ¶ 53. “If [Trident] was unable to
consummate a business combination by then, [Trident] would be required to (i) cease all
6

operations except for the purpose of winding up, (ii) as promptly as reasonably possible but
no more than ten business days thereafter, redeem 100% of the outstanding public shares, and
(iii) liquidate and dissolve the company.” Id. Trident could seek shareholder approval of an
extension of the business-combination deadline. Id. ¶ 54. But “if such an extension was
approved, [Trident] was required to provide shareholders with the opportunity to redeem all or
a portion of their public shares.” Id. That scenario risked shareholders “decid[ing] to redeem
[Trident] shares in amounts that would significantly deplete [Trident’s] trust account and
jeopardize its ability to complete a transaction even with an extended deadline.” Id. The
failure to complete an IPO would render “worthless” the millions of shares and warrants
acquired by Trident’s directors and officers. Id. ¶ 55.
Trident “sought and obtained three extensions of the deadline, and each time, a portion
of shareholders sought to redeem their shares.” Id. ¶ 56. As a result of those redemptions,
Trident’s officers and directors “saw their financial interest in the company continue to
dwindle,” and “the amount of funds [that Trident] had access to for an acquisition greatly
declined, further shrinking the available pool of potential companies for which a potential
acquisition by [Trident] would be enticing.” Id. ¶ 57. The last of these extensions pushed the
business-combination deadline until December 1, 2020. Id. ¶ 56. Following the third
extension and corresponding redemption of shares, Trident had just $62,286,780 left of the
original amount of $201,250,000. Id.
C. Trident’s Merger with Lottery
On November 19, 2020, Trident announced that it had signed a letter of intent to
combine with Lottery, a private company founded in 2015 and based in Austin, Texas. Id.
¶¶ 58-59. Lottery offered users an online platform to play lottery games, including state-

7

sanctioned games such as Powerball and Mega Millions. Id. ¶ 59. Lottery also provided
lottery-related data to digital publishers. Id.
A press release dated November 19, 2020, filed with the SEC on a Form 8-K, 2
described Lottery as “ha[ving] been a pioneer in the lottery industry, working closely with
state regulators to advance the industry into the digital age.” Id. ¶ 74 (emphasis omitted); see
ECF No. 117-3 (the “11/19/20 Form 8-K”). It also stated that Lottery “works closely with
state regulators to advance the lottery industry, providing increased revenues and better
regulatory capabilities, while capturing untapped market share, including millennial players.”
Class Compl. ¶ 74 (emphasis omitted). Lottery “made the same or substantially similar
statements regarding Lottery’s work with state regulators throughout the Class Period.” Id.
¶ 75 (listing press releases (the “State-Regulator Press Releases”) issued on February 8,
February 22, March 22, April 5, April 12, April 21, April 27, and June 9, 2021; all were also
filed with the SEC as Form 8-Ks); see, e.g., ECF No. 120-2 at 9; ECF No. 120-3 at 10.
Lottery filed the final proxy statement and prospectus for the de-SPAC transaction
with the SEC on October 18, 2021. Class Compl. ¶ 77; ECF No. 78 (“Ali Class Decl.”) ¶ 3;
ECF No. 78-1 (the “Proxy”). In the Proxy – and, indeed, “[t]hroughout the Class Period” –
Lottery “represented that it recognized revenue in accordance with generally accepted
accounting principles (‘GAAP’) and that its financial and other public statements adequately

2

A Form 8-K is a filing with the SEC announcing “material corporate events that should be
known by the shareholders.” Wyche v. Advanced Drainage Sys., Inc., No. 15-cv-05955
(KPF), 2017 WL 971805, at *1 n.1 (S.D.N.Y. Mar. 10, 2017), aff’d, 710 F. App’x 471 (2d
Cir. 2017) (summary order). A Form 8-K/A is used to amend a previously filed Form 8-K.
See Exchange Act Form 8-K, SEC (updated Dec. 14, 2023), https://www.sec.gov/divisions/
corpfin/guidance/8-kinterp.htm [https://perma.cc/8PSM-AL49]. A Form 10-Q is a quarterly
report that “provides a continuing view of the company’s financial position during the year
and generally includes unaudited financial statements.” Wyche, 2017 WL 971805, at *1 n.1.
“A Form 10-K is an annual report that is intended to detail the financial condition and
performance of a particular company for an annual period in a comprehensive manner.” Id.
8

represented its financial condition.” Class Compl. ¶ 64; see, e.g., Proxy at 186 (“Our financial
statements were prepared in conformity with U.S. GAAP.”). 3
The Proxy projected that Lottery would generate more than $70 million in revenue,
more than $3 million in earnings before interest, taxes, depreciation, and amortization
(“EBITDA”), a 32 percent gross-profit margin, and a 5 percent EBITDA margin for the 2021
fiscal year. Class Compl. ¶ 80. Elsewhere in the document, however, the Proxy warned:
As a private company, we have not been required to document
and test our internal controls over financial reporting nor has
our management been required to certify the effectiveness of
our internal controls and our auditors have not been required to
opine on the effectiveness of our internal control over financial
reporting. Failure to maintain adequate financial, information
technology and management processes and controls has resulted
in and could result in material weaknesses which could lead to
errors in our financial reporting, which could adversely affect
our business.
Proxy at 42.
The Proxy also noted that “[i]n the course of preparing the financial statements that are
included in this proxy statement/prospectus, [Lottery] ha[d] identified a material weakness in
[its] internal control over financial reporting as of December 31, 2020.” Id. at 74. This
material weakness “relate[d] to a deficiency in the design and operation of the financial
statement close and reporting controls, including maintaining sufficient written policies and

3

“The Accounting Standards Codification (‘ASC’) is the source of authoritative generally
accepted accounting principles, commonly referred to as ‘GAAP,’ published by the Financial
Accounting Standards Board (‘FASB’) to be applied by nongovernmental entities such as
[Lottery].” DeCarlo, 80 F.4th at 172 n.9 (further quotation marks and citation omitted); see
Class Compl. ¶ 136 & n.10. “The SEC treats the FASB’s standards as authoritative.” Ganino
v. Citizens Utils. Co., 228 F.3d 154, 159 n.4 (2d Cir. 2000); accord Lucescu v. Zafirovski, No.
09-cv-04691 (DLC), 2018 WL 1773134, at *7 (S.D.N.Y. Apr. 11, 2018); see also 17 C.F.R.
§ 210.4-01(a)(1) (“Financial statements filed with the Commission which are not prepared in
accordance with generally accepted accounting principles will be presumed to be misleading
or inaccurate, despite footnote or other disclosures, unless the Commission has otherwise
provided.”).
9

procedures and the need to use appropriate technical expertise when accounting for complex
or non-routine transactions.” Id. The Proxy attributed the material weakness to the fact that,
up to that point, Lottery was “a private company with limited resources” that “did not have the
necessary business processes and related internal controls, or the appropriate resources or
level of experience and technical expertise, that would be required to oversee financial
reporting processes or to address the accounting and financial reporting requirements.” Id.
The Proxy assured investors that Lottery’s “management [wa]s in the process of developing a
remediation plan.” Id. But it warned that “[t]he material weakness remains unremediated as
of June 30, 2021,” and that it “could result in misstatements to [Lottery’s] financial statements
that would be material and would not be prevented or detected on a timely basis.” Id.
The Proxy further stated that “[d]uring the course of documenting and testing [its]
internal control procedures . . . , [Lottery] may identify other weaknesses and deficiencies in
[its] internal control over financial reporting.” Id. at 75. The Proxy noted that if Lottery
“fail[s] to maintain the adequacy of [its] internal control over financial reporting,” it “may”
suffer various negative consequences. Id.
The Proxy also addressed the possibility that a jurisdiction could “enact, amend, or
reinterpret laws and regulations governing [Lottery’s] operations” in ways that would impair
its “existing operations or planned growth,” with potential ramifications for its “operations,
cash flow, or financial condition.” Class Compl. ¶ 78 (emphasis omitted). The Proxy added
that Lottery’s “business model and the conduct of our operations may have to vary in each
U.S. jurisdiction where [it] do[es] business to address the unique features of applicable law to
ensure [it] remain[s] in compliance with that jurisdiction’s laws. [Lottery’s] failure to
adequately do so may have an adverse impact on [its] business, financial condition, and
results of operations.” Id. (emphasis omitted).
10

On October 21, 2021, Lottery issued a press release announcing its preliminary
revenue results for the third quarter of 2021. Id. ¶ 83; ECF No. 120-4 (the “10/21/21 Press
Release”). Per the 10/21/21 Press Release, Lottery’s third-quarter revenue was “expected to
be between $22.0 million and $24.0 million.” Class Compl. ¶ 83. “The strong growth
[compared to the previous quarter] was driven by increased sales in the Company’s [businessto-business] segment.” Id. The 10/21/21 Press Release also stated that, “[o]n a preliminary
basis, revenue through the first nine months of 2021 is expected to be between $36.8 million
and $38.8 million on a reported basis and $38.7 million and $40.7 million on a pro forma
basis,” reflecting an increase of more than 270 percent compared to “the full twelve months of
2020.” Id.
The 10/21/21 Press Release included a “notice regarding forward-looking statements”
providing that “this release contains statements that constitute ‘forward-looking statements,’”
and that “all statements, other than statements of present or historical fact included in this
press release, regarding preliminary third quarter revenue results [and other topics] . . . are
forward-looking statements.” 10/21/21 Press Release at 4 (capitalization omitted). The notice
“caution[ed] . . . that the forward-looking statements contained in this press release are subject
to [various] factors,” including Lottery’s “ability to maintain effective internal controls over
financial reporting, including the remediation of identified material weaknesses in internal
control over financial reporting relating to segregation of duties with respect to, and access
controls to, its financial record keeping system, and [Lottery’s] accounting staffing levels.”
Id. at 5. “Should one or more of the risks or uncertainties described in this press release
materialize,” the notice added, “actual results and plans could differ materially from those
expressed in any forward-looking statements.” Id. at 6.

11

To ensure consummation of the merger, Trident’s board and shareholders approved
measures extending the time to complete the deal until as late as December 1, 2021. Class
Compl. ¶ 60 n.6. On October 29, 2021, Trident and Lottery announced that they had
completed the merger, with the combined entity retaining Lottery’s name. Id. ¶ 61. Lottery’s
common shares and warrants began trading on the NASDAQ on November 1, 2021. Id.
DiMatteo was a co-founder of Lottery who served as an officer and director prior to
the merger; after the merger, he was Lottery’s CEO and chairperson. Id. ¶ 27. Clemenson,
another co-founder of Lottery, was the company’s chief commercial officer at the time of the
merger; he retained that title until March 2022, at which time he became Lottery’s chief
revenue officer. Id. ¶ 29. Dickinson was Lottery’s president and chief operating officer
(“COO”) prior to the merger; after the merger, he served as Lottery’s president, treasurer, and
acting CFO. Id. ¶ 28. Following the merger, Lever served as Lottery’s COO and chief legal
officer. Id. ¶ 30. Komissarov was CEO and a director of Trident prior to the merger. Id. ¶
34. He also served as Trident’s CFO until November 20, 2020. Id.
D. Post-Merger Events
1. The 11/15/21 Form 8-K/A
On November 15, 2021, Lottery filed financial statements as an exhibit to a Form 8K/A submission. Id. ¶¶ 65, 89; see ECF No. 120-12 (the “11/15/21 Form 8-K/A”). In that
filing, Lottery reported that for the three months ending on September 30, 2021, revenue
increased from $1.6 million to $32.25 million – that is, by $30.65 million, or over 1,900
percent – compared to the same three-month period in 2020. Class Compl. ¶ 65; 11/15/21
Form 8-K/A at 13. Lottery stated that “[t]he increase in revenue was driven by a $30 million
sale of affiliate marketing credits during the three months ended September 30, 2021.”
11/15/21 Form 8-K/A at 13; see also id. at 15 (attributing increase in revenue over nine-month
12

period ending September 30, 2021, to “several factors including a $30 million sale of affiliate
marketing credits during the three months ended September 30, 2021”). In other words,
“nearly all of the revenue for the quarter was derived from [the sale of] marketing credits to an
affiliate.” Class Compl. ¶ 65. Lottery “termed these credits ‘LotteryLink Credits.’” Id. ¶ 5
n.1. “LotteryLink Credits could be purchased by [Lottery’s] third-party marketers and
redeemed as advertising credits to support flexible promotional packages (such as prepaid
advertising, prepaid lottery games, among other things) via [Lottery’s] LotteryLink affiliate
marketing program.” Id.
Lottery made similar representations about revenue in a Form 8-K also filed on
November 15, 2021. Id. ¶ 85 (“Third quarter 2021 revenue was $32.2 million, an increase of
$30.6 million from the third quarter of 2020. The growth was driven by the global affiliate
marketing program. . . . The Company expects to meet or exceed its previous guidance of $71
million for full year 2021 revenue.” (ellipsis in original)); see ECF No. 120-11 (the “11/15/21
Form 8-K”).
2. The Q3 2021 Report
That same day, on November 15, 2021, Lottery filed its quarterly report for the third
fiscal quarter of 2021 on a Form 10-Q. Class Compl. ¶ 87; Lottery.com Inc., Quarterly Report
(Form 10-Q) (Nov. 15, 2021) (the “Q3 2021 Report”), https://www.sec.gov/Archives/edgar/
data/1673481/000121390021059462/f10q0921_lotterycominc.htm [https://perma.cc/3B62U36F]. The Q3 2021 Report “referenced the fact that [Lottery] had identified a material
weakness relating to a technical accounting issue identified by the SEC in SPAC-related
guidance.” Class Compl. ¶ 87. “Specifically, Lottery determined that its disclosure controls
and procedures were not effective as of September 30, 2021, and thus had restated its financial
statements . . . , in order to comply with a new SEC Staff Statement regarding the
13

classification of warrants.” Id. “Other than” that, the Q3 2021 Report continued, “there were
no changes in [Lottery’s] internal control over financial reporting . . . during the most recent
fiscal quarter that have materially affected, or are reasonably likely to materially affect,
[Lottery’s] internal control over financial reporting.” Id. (emphasis omitted). Lottery also
announced its “plan to enhance [its] processes to identify and appropriately apply applicable
accounting requirements to better evaluate and understand the nuances of the complex
accounting standards that apply to [its] financial statements.” Id. (emphasis omitted).
Several exhibits were “filed as part of, or incorporated by reference into,” the Q3 2021
Report. Q3 2021 Report at 25. Among the exhibits were certifications by DiMatteo and
Dickinson, as required by the Sarbanes-Oxley Act of 2002 (“SOX”) and its implementing
regulations. Class Compl. ¶ 99; Q3 2021 Report, Ex. 31.1, https://www.sec.gov/Archives/
edgar/data/1673481/000121390021059462/f10q0921ex31-1_lotterycom.htm
[https://perma.cc/DR9Z-FNBL] (DiMatteo’s SOX certification); Q3 2021 Report, Ex. 31.2,
https://www.sec.gov/Archives/edgar/data/1673481/000121390021059462/f10q0921ex312_lotterycom.htm [https://perma.cc/5E7H-5FED] (Dickinson’s SOX certification); see 15
U.S.C. § 7241; 17 C.F.R. § 240.13a-14.
DiMatteo and Dickinson both certified that they had reviewed the Q3 2021 Report and
that, “[b]ased on [their] knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report.” Class Compl. ¶ 99. They also certified that, “[b]ased on
[their] knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report.” Id. DiMatteo
14

and Dickinson further certified that they “ha[d] disclosed, based on [their] most recent
evaluation of internal control over financial reporting, to [Lottery’s] auditors and the audit
committee of [Lottery’s] board of directors (or persons performing the equivalent functions)”:
(1) “[a]ll significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information”; and
(2) “[a]ny fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.” Id.
DiMatteo and Dickinson made “substantially similar certifications” in “[e]ach of Lottery’s
financial statements issued during the Class Period after the [de-SPAC transaction].” Id.
3. The 3/31/22 Form 8-K and the 2021 Annual Report
On March 31, 2022, Lottery “issued a press release, also filed as an attachment to a
Form 8-K filed with the SEC on that date.” Id. ¶ 91; see ECF No. 120-13 (the “3/31/22 Form
8-K”). In the 3/31/22 Form 8-K, Lottery touted “strong” financial results for the fourth
quarter of 2021 as well as for the full year of 2021. Class Compl. ¶ 91. Specifically, Lottery
reported $21.5 million in revenue for the fourth quarter of 2021 (an increase of $18.2 million,
or about 550 percent, compared to the fourth quarter of 2020) and $62.6 million in cash for
the fourth quarter of 2021 (an increase of $58.8 million, or over 1,500 percent, compared to
the fourth quarter of 2020). Id. Lottery also reported $68.5 million in revenue for 2021 (an
increase of $61 million, or over 800 percent, compared to 2020). Id.
On April 1, 2022, Lottery filed its annual report for 2021 on a Form 10-K. Id. ¶ 62;
see ECF No. 78-2 (the “2021 Annual Report”). The 2021 Annual Report “reiterated the
financial results released the prior day” in the 3/31/22 Form 8-K. Class Compl. ¶ 91. The
2021 Annual Report added that the $68.5 million in revenue was “driven by the sale of $47.1
15

million in LotteryLink Credits for prepaid advertising, prepaid lottery games, marketing
materials and development services in the third and fourth quarters of 2021.” Id. ¶ 66.
Lottery also reported that its accounts receivable as of December 31, 2021, was $21,696,653.
Id. 4 “Since the accounts receivable figure was lower than revenue for the same period (which
itself was ‘driven’ by the sale of marketing credits), [Lottery] suggested that it had collected
more than half the revenue from marketing credits from the customer.” Id.
The 2021 Annual Report “also stated that it had identified a material weakness in
internal control over financial reporting as of year-end 2021 and 2020, but it described this
material weakness as one largely related to personnel and staffing – specifically, it related to
‘the design and operation of the procedures relating to the closing of financial statements.’”
Id. ¶ 93. “Defendants reassured investors that [Lottery] had ‘commenced measures to
remediate’ [this] material weakness” and that, “other than the deficiencies identified, ‘there
was no change in [Lottery’s] internal control over financial reporting.’” Id.
In the 2021 Annual Report, Lottery further stated that it “rel[ies] on technology
services to closely monitor and track amendments, additions, and impositions of regulations in
all jurisdictions regarding the authorization of lottery and work to maintain effective
relationships with applicable legislative and regulatory authorities in each jurisdiction in
which we operate or anticipate operating in.” Id. ¶ 62. Lottery added that it “use[s] this
information . . . to create strong working relationships with the regulatory authorities in the
jurisdictions in which [it] do[es] business, to ensure transparent regulatory compliance and
promote each jurisdiction’s objective for economic benefit through the sale of lottery games.”

4

An “account receivable” is “[a]n account reflecting a balance owed by a debtor; a debt owed
by a customer to an enterprise for goods or services.” Account, Black’s Law Dictionary (11th
ed. 2019); accord Medi-Cen Corp. of Md. v. Birschbach, 720 A.2d 966, 969 (Md. Ct. Spec.
App. 1998) (collecting similar definitions).
16

Id. Lottery also stated: “While we believe that we are in compliance with all material
domestic and international laws and regulatory requirements applicable to our business, we
cannot ensure that our activities or the activities of those third parties with whom we do
business will not become the subject of regulatory or law enforcement proceedings.” 2021
Annual Report at 43; see Class Compl. ¶ 62.
4. The 5/16/22 Form 8-K and the Q1 2022 Report
On May 16, 2022, Lottery “issued a press release, filed with the SEC on Form 8-K.”
Class Compl. ¶ 95; see ECF No. 120-14 (the “5/16/22 Form 8-K”). Lottery reported $21.2
million in revenue during the first quarter of 2022 (an increase of $15.7 million, or about 285
percent, compared to the first quarter of 2021) and $50.8 million in cash during the first
quarter of 2022 (an increase of $32.5 million, or about 175 percent, compared to the first
quarter of 2021). Class Compl. ¶ 95.
Also on May 16, 2022, Lottery filed its quarterly report for the first quarter of 2022 on
a Form 10-Q. Id. ¶¶ 67, 95; Lottery.com Inc., Quarterly Report (Form 10-Q) (May 16, 2022)
(the “Q1 2022 Report”), https://www.sec.gov/Archives/edgar/data/1673481/
000121390022027217/f10q0322_lotterycom.htm [https://perma.cc/PT85-JQPD]. The Q1
2022 Report “reiterated the financial results disclosed in its press release.” Class Compl. ¶ 95.
Lottery stated that “[t]he increase in revenue was driven by the sale of $18 million in
LotteryLink Credits for prepaid promotional rewards, marketing materials and development
services.” Q1 2022 Report at 10; see Class Compl. ¶ 67. An anonymous “Customer A”
accounted for 87.7 percent of Lottery’s revenue and 99.6 percent of Lottery’s accounts
receivable for the quarter. Class Compl. ¶ 70.
The Q1 2022 Report further stated that Lottery had “evaluated the effectiveness of [its]
disclosure controls and procedures.” Id. ¶ 97. Based on this evaluation, Lottery’s CEO and
17

CFO – that is, DiMatteo and Dickinson – “ha[d] concluded that, as of the end of the period
covered by this Quarterly Report, [Lottery’s] disclosure controls and procedures were not
effective due to the material weakness in [its] internal control over financial reporting with
respect to [its] financial statement close and reporting process.” Id. (emphasis omitted). But
Lottery reassured investors that “[n]otwithstanding such material weakness in [its] internal
control over financial reporting, [Lottery’s] management concluded that [its] condensed
consolidated financial statements included in this Quarterly Report fairly present, in all
material respects, [its] financial position, results of operations and cash flows as of the dates
and for the periods presented in conformity with GAAP.” Id. (emphasis omitted).
5. The July 2022 Disclosures
In a Form 8-K filed with the SEC on July 6, 2022 (but signed the day before), “Lottery
disclosed that an internal investigation had revealed ‘issues pertaining to the Company’s
internal accounting controls’ and ‘instances of non-compliance with state and federal laws
concerning the state in which tickets are procured as well as order fulfillment.’” Id. ¶ 76
(emphasis omitted); see id. ¶¶ 63, 68; ECF No. 117-5 (the “7/6/22 Form 8-K”). Lottery also
revealed that, on June 30, 2022, its board had fired Dickinson from his positions as Lottery’s
CFO, president, and treasurer, effective July 1, 2022. Class Compl. ¶ 68; 7/6/22 Form 8-K
at 3.
On July 15, 2022, Lottery announced in a Form 8-K that Clemenson, its chief revenue
officer, had resigned on July 11, 2022, effective immediately. Class Compl. ¶ 69; see ECF
No. 113-2 (the “7/15/22 Form 8-K”) at 3. Lottery also “reported that, after a review of its
cash balances, its revenue recognition policies and procedures, and other internal accounting
controls,” it “preliminarily conclude[d] that it has overstated its available unrestricted cash
balance by approximately $30 million and that, relatedly, in the prior fiscal year, it improperly
18

recognized revenue in the same amount.” Class Compl. ¶ 69 (brackets in original; emphasis
omitted).
On July 22, 2022, Lottery filed a Form 8-K disclosing that its independent auditor had
“determined ‘that the audited financial statements for the year ended December 31, 2021, and
the unaudited financial statements for the quarter ended March 31, 2022, should no longer be
relied upon,’ and ‘that a Company subsidiary entered into a line of credit in January 2022 that
was not disclosed in the footnotes to the December 31, 2021 financial statements and was not
recorded in the March 31, 2022 financial statements.’” Id. ¶ 71 (emphasis omitted); see
Lottery.com Inc., Current Report (Form 8-K) (July 22, 2022) (the “7/22/22 Form 8-K”),
https://www.sec.gov/Archives/edgar/data/1673481/000121390022041017/ea1632308k_lottery.htm [https://perma.cc/6Y68-GHQG]. Lottery also disclosed that DiMatteo,
Lottery’s CEO, was resigning, effective immediately. Class Compl. ¶ 71. Subsequently, on
October 6, 2022, Lottery disclosed that its independent auditor had resigned, effective
immediately. Id. ¶ 115.
II. Procedural History
On August 19, 2022, Preston Million filed a putative class action against Lottery,
DiMatteo, Clemenson, and Dickinson, asserting one count under Section 10(b) and Rule 10b5 and a second count under Section 20(a). ECF No. 1. On September 22, 2022, the case was
reassigned to the undersigned. ECF No. 14.
On October 18, 2022, Preston Million, Tim Weisheipl, Stephan de Bernede, Connor
Hitt, and Solutions Tabarnapp Inc. (collectively, the “Securities Group”) moved to serve as
lead plaintiffs. ECF No. 26. That same day, RTD Bros LLC, Todd Benn, Tom Benn, and
Tomasz Rzedzian (collectively, the “Investor Group”) also moved to serve as lead plaintiffs.
ECF No. 27. On November 18, 2022, the Court granted the Investor Group’s motion and
19

denied the Securities Group’s motion. See Million v. Lottery.com Inc., No. 22-cv-07111
(JLR), 2022 WL 17076749, at *4 (S.D.N.Y. Nov. 18, 2022).
Hoffman filed his complaint on December 21, 2022. Hoffman Compl. The Class
Plaintiffs filed the Amended Class-Action Complaint on January 31, 2023. Class Compl. On
March 2, 2023, Lottery, Clemenson, and Dickinson jointly moved to consolidate the Class
Plaintiffs’ action with Hoffman’s action. Hoffman ECF No. 24. Hoffman opposed the
consolidation motion. Hoffman ECF No. 26; see also Hoffman ECF Nos. 27-28 (additional
filings). On March 10, 2023, the Court granted the motion to consolidate, explaining that
“both actions involve substantially identical questions of law and fact.” ECF No. 71 at 5.
On April 3, 2023, four Defendants – Lottery, DiMatteo, Clemenson, and Dickinson –
moved to dismiss the Amended Class-Action Complaint. Lottery Class Br.; DiMatteo Class
Br.; C&D Class Br.; see also Ali Class Decl. Also on April 3, 2023, the same Defendants
filed motions to dismiss the Hoffman Complaint. Lottery Hoffman Br.; DiMatteo Hoffman
Br.; C&D Hoffman Br.; see also ECF No. 84 (attorney declaration). These motions are fully
briefed. Lottery Class Opp.; DCD Opp.; Hoffman Opp.; Lottery Class Reply; Lottery
Hoffman Reply; C&D Class Reply; C&D Hoffman Reply; DiMatteo Reply.
On September 15, 2023, Lever moved to dismiss the Amended Class-Action
Complaint. Lever Br.; see also ECF No. 113 (attorney declaration). On September 20, 2023,
Komissarov moved to dismiss the Amended Class-Action Complaint. Komissarov Br.; see
also ECF No. 117 (attorney declaration). These motions are fully briefed. Lever Opp.;
Komissarov Opp.; Komissarov Reply; Lever Reply; see also ECF No. 120 (attorney
declaration).

20

Several of the parties requested oral argument via notations on their briefs. The Court
held oral argument on January 29, 2024. ECF No. 124; Jan. 29, 2024 Oral Arg. Tr. (“Tr.”). 5
LEGAL STANDARD
To survive a motion to dismiss under Rule 12(b)(6), “a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). A court accepts a complaint’s factual allegations as true and draws all
reasonable inferences in favor of the plaintiff. DeCarlo, 80 F.4th at 168. Still, a complaint
must allege “more than a sheer possibility that a defendant has acted unlawfully” and more
than “facts that are ‘merely consistent with’ a defendant’s liability.” Iqbal, 556 U.S. at 678
(quoting Twombly, 550 U.S. at 557). “Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Id.
A court “must consider the complaint in its entirety, as well as other sources courts
ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents
incorporated into the complaint by reference, and matters of which a court may take judicial
notice.” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 322 (2007); see, e.g.,
Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991) (on motion to dismiss
securities-fraud complaint, district court properly took judicial notice of offer to purchase and

5

In his brief, Hoffman fully adopted all of the Class Plaintiffs’ arguments without
qualification or addition. See Hoffman Opp. at 3 (“Plaintiff Hoffman adopts all arguments
advanced by class counsel in opposition to Defendants’ motions. The filing by Hoffman of
memoranda repeating those same arguments is unnecessary and counterproductive to the
purpose of consolidation.”). During oral argument, Hoffman conceded that if the Amended
Class-Action Complaint fails to state a claim, then the Hoffman Complaint does as well. See
Tr. at 58:25-59:3. The Court notes that Hoffman “is a lawyer and, therefore, he cannot claim
the special consideration which the courts customarily grant to pro se parties.” Harbulak v.
County of Suffolk, 654 F.2d 194, 198 (2d Cir. 1981) (emphasis added).
21

proxy statement). A court may also consider a document, even if not incorporated into the
complaint or subject to judicial notice, if “the complaint relies heavily upon its terms and
effect, thereby rendering the document ‘integral’ to the complaint,” DiFolco v. MSNBC Cable
L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (further quotation marks and citation omitted), so
long as there is no dispute about the document’s “authenticity or accuracy,” Faulkner v. Beer,
463 F.3d 130, 134 (2d Cir. 2006).
DISCUSSION
I.

Service of Process
Preliminarily, the Court addresses service of process. “[A]bsent consent, a basis for

service of a summons on the defendant is prerequisite to the exercise of personal jurisdiction.”
BNSF Ry. Co. v. Tyrrell, 581 U.S. 402, 409 (2017); accord Schwab Short-Term Bond Mkt.
Fund v. Lloyds Banking Grp. PLC, 22 F.4th 103, 121 (2d Cir. 2021) (personal jurisdiction
requires that “the plaintiff’s service of process upon the defendant [was] procedurally proper”
(citation omitted)). Service of process in federal court generally is governed by Federal Rule
of Civil Procedure 4 (“Rule 4”). Omni Cap. Int’l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97,
104 (1987); Buon v. Spindler, 65 F.4th 64, 74 (2d Cir. 2023). Rule 4(m) provides that “[i]f a
defendant is not served within 90 days after the complaint is filed, the court – on motion or on
its own after notice to the plaintiff – must dismiss the action without prejudice against that
defendant or order that service be made within a specified time. But if the plaintiff shows
good cause for the failure, the court must extend the time for service for an appropriate
period.” Fed. R. Civ. P. 4(m).
Five Defendants were not timely served: Rosenberg, Gallagher, Butkevych,
Ponomarev, and Komissarov. Of those five, the first four have still not yet been served. At

22

oral argument, the Class Plaintiffs confirmed that they were no longer proceeding against
those individuals and agreed that they should be dismissed from the case. Tr. at 56:16-22.
Komissarov is another matter. As noted, the Class Plaintiffs filed the Amended ClassAction Complaint on January 31, 2023. Class Compl. Komissarov was served on July 4,
2023. ECF No. 103. In other words, Komissarov was “not served within 90 days after the
complaint [wa]s filed.” Fed. R. Civ. P. 4(m). Komissarov argues that this untimely service of
process provides a sufficient basis to dismiss the claims against him, and that the Court should
do so. See Komissarov Br. at 21-22. The Class Plaintiffs do not deny that service was
untimely or claim to have good cause for failing to timely serve Komissarov. See Komissarov
Opp. at 22-24. Nonetheless, they contend that the Court should excuse their delay. See id.
“[I]t is well settled that district courts have discretion to grant extensions under Rule
4(m) even in the absence of good cause.” Buon, 65 F.4th at 75 (original brackets, quotation
marks, and citation omitted). “In determining whether a discretionary extension is appropriate
in the absence of good cause, a court considers the following four factors: (1) whether any
applicable statutes of limitations would bar the action once refiled; (2) whether the defendant
had actual notice of the claims asserted in the complaint; (3) whether [the] defendant
attempted to conceal the defect in service; and (4) whether [the] defendant would be
prejudiced by extending plaintiff’s time for service.” DeLuca v. AccessIT Grp., Inc., 695 F.
Supp. 2d 54, 66 (S.D.N.Y. 2010).
On the present facts, the decisive factor is the fourth: lack of prejudice. Notably,
Komissarov has offered no good reason to believe that he “would be prejudiced by extending
[the Class Plaintiffs’] time for service.” Id. Given this lack of prejudice and the Second
Circuit’s “strong preference for resolving disputes on the merits,” Williams v. Citigroup Inc.,
659 F.3d 208, 212-13 (2d Cir. 2011) (per curiam) (citation omitted), the Court excuses the
23

Class Plaintiffs’ delay in serving Komissarov and thus declines to dismiss the Class Plaintiffs’
claims against Komissarov for untimely service.
The Court now proceeds to the merits.
II. Section 10(b) Claims
“Section 10(b) of the Securities Exchange Act of 1934 and the Securities and
Exchange Commission’s Rule 10b-5 prohibit making any material misstatement or omission
in connection with the purchase or sale of any security.” Halliburton Co. v. Erica P. John
Fund, Inc., 573 U.S. 258, 267 (2014). To state a claim under Section 10(b) and Rule 10b-5, a
plaintiff must allege: “(1) a material misrepresentation or omission by the defendant;
(2) scienter; (3) a connection between the misrepresentation or omission and the purchase or
sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and
(6) loss causation.” Id. (citation omitted).
Section 10(b) claims must satisfy the heightened pleading requirements of Federal
Rule of Civil Procedure 9(b) (“Rule 9(b)”) and the Private Securities Litigation Reform Act of
1995 (the “PSLRA”). See In re Synchrony Fin. Sec. Litig., 988 F.3d 157, 166 (2d Cir. 2021).
Rule 9(b) requires a plaintiff to “state with particularity the circumstances constituting
fraud.” Fed. R. Civ. P. 9(b). “To do so, a plaintiff must: (1) specify the statements that the
plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the
statements were made, and (4) explain why the statements were fraudulent.” In re Synchrony,
988 F.3d at 167 (quotation marks and citation omitted).
For its part, the PSLRA “imposes procedural and substantive limitations upon the
scope of the private right of action available under § 10(b) and Rule 10b-5.” Chadbourne &
Parke LLP v. Troice, 571 U.S. 377, 383 (2014). The PSLRA requires that with respect to
falsity – that is, the “material misrepresentation or omission” element of a securities-fraud
24

claim – “the complaint shall specify each statement alleged to have been misleading, the
reason or reasons why the statement is misleading, and, if an allegation regarding the
statement or omission is made on information and belief, the complaint shall state with
particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). The PSLRA
also requires the complaint to “state with particularity facts giving rise to a strong inference
that the defendant acted with the required state of mind,” that is, scienter. Id. § 78u-4(b)(2).
Defendants challenge two elements of Plaintiffs’ Section 10(b) and Rule 10b-5 claims:
falsity and scienter. The Court addresses each in turn.
A. Falsity
1. Overview of Falsity
The first element of a securities-fraud claim is “a material misrepresentation or
omission by the defendant.” Halliburton, 573 U.S. at 267 (citation omitted). “At the pleading
stage, a plaintiff satisfies the materiality requirement by alleging a statement or omission that
a reasonable investor would have considered significant in making investment decisions.”
DeCarlo, 80 F.4th at 182 (ellipsis and citation omitted). Put otherwise, there must be a
“substantial likelihood” that the statement or omission “would have been viewed by the
reasonable investor as having significantly altered the total mix of information made
available.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011) (quotation marks
and citation omitted).
“The veracity of a statement or omission is measured not by its literal truth, but by its
ability to accurately inform rather than mislead prospective buyers.” Ark. Pub. Emps. Ret.
Sys. v. Bristol-Myers Squibb Co., 28 F.4th 343, 354 (2d Cir. 2022) (“APERS”) (citation
omitted). Ultimately, “whether a statement is ‘misleading’ depends on the perspective of the
reasonable investor.” Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund,
25

575 U.S. 175, 186 (2015). “The inquiry (like the one into materiality) is objective,” id. at 187,
and it considers not only a statement’s “literal truth,” but also the “context and manner of
presentation,” Singh v. Cigna Corp., 918 F.3d 57, 63 (2d Cir. 2019) (citation omitted).
“Silence, absent a duty to disclose, is not misleading under Rule 10b-5.” Matrixx
Initiatives, 563 U.S. at 45 (citation omitted). In other words, “a corporation is not required to
disclose a fact merely because a reasonable investor would very much like to know that fact.
Rather, an omission is actionable under the securities laws only when the corporation is
subject to a duty to disclose the omitted facts.” Dalberth v. Xerox Corp., 766 F.3d 172, 183
(2d Cir. 2014) (citation omitted). “This duty may arise when a corporate insider trades on
confidential information, a statute or regulation requires disclosure, or a statement is made
that would be inaccurate, incomplete, or misleading without further context.” In re
Synchrony, 988 F.3d at 167 (brackets, quotation marks, and citation omitted).
The distinction between statements of fact and statements of opinion presents another
wrinkle. “In general, a fact is ‘a thing done or existing or an actual happening,’ while an
opinion is ‘a belief, a view, or a sentiment which the mind forms of persons or things.’”
DeCarlo, 80 F.4th at 169 (quoting Omnicare, 575 U.S. at 183). “A statement of fact
‘expresses certainty about a thing,’ while a statement of opinion does not.” Id. (quoting
Omnicare, 575 U.S. at 183). Statements of opinion often, but not always, “include qualifying
language (like ‘I believe’ or ‘I think’) that conveys a lack of certainty about the thing being
expressed, marks the statement as reflecting the speaker’s impression or point of view rather
than an objective truth, and makes it easier to identify the statement as one of opinion rather
than fact.” Id.; see In re Philip Morris Int’l Inc. Sec. Litig., 89 F.4th 408, 418 (2d Cir. 2023)
(“[L]anguage like ‘we believe’ or ‘we think’ is sufficient – not necessary – to render a
statement one of opinion rather than fact.”). “A reasonable person understands, and takes into
26

account, the difference . . . between a statement of fact and one of opinion.” Omnicare, 575
U.S. at 187.
Under Omnicare, statements of opinion are actionable misrepresentations or omissions
in at least three situations: (1) when “the speaker did not hold the belief she professed”;
(2) when “the statement of opinion contains embedded statements of fact that are untrue”; and
(3) when “the statement omits information whose omission conveys false facts about the
speaker’s basis for holding that view and makes the opinion statement misleading to a
reasonable investor.” DeCarlo, 80 F.4th at 171 (citation omitted); see also id. at 170 (“In the
context of a securities transaction, a reasonable investor expects that opinion statements rest
on some meaningful inquiry, fairly align with the information in the issuer’s possession at the
time, and do not reflect baseless, off-the-cuff judgments.” (ellipsis, brackets, quotation marks,
and citation omitted)). Although Omnicare involved Section 11 of the Securities Act of 1933,
that provision “shares the relevant text concerning false and misleading statements with Rule
10b-5.” Abramson v. Newlink Genetics Corp., 965 F.3d 165, 175 (2d Cir. 2020).
Consequently, the Second Circuit has “applied the holding in Omnicare to claims brought
under Section 10(b) of the Exchange Act.” DeCarlo, 80 F.4th at 178 n.16.
2. Particularity and Puzzle Pleading
At the outset, Defendants assert that “Plaintiffs have not sufficiently identified the
alleged false statements and have not explained with particularity why each statement is
false.” Lottery Class Br. at 7. The Court disagrees.
It is true that so-called “puzzle pleading” – that is, “reproducing blocks of text from
allegedly deceptive . . . statements without specifying which portions are misleading,” In re
NTL, Inc. Sec. Litig., 347 F. Supp. 2d 15, 22 (S.D.N.Y. 2004), and offering only “pro forma
reasons why the statements quoted are allegedly false,” Born v. Quad/Graphics, Inc., 521 F.
27

Supp. 3d 469, 477 (S.D.N.Y. 2021) (citation omitted) – is insufficiently particular under the
pleading requirements of the PSLRA, see In re AstraZeneca plc Sec. Litig., No. 21-cv-00722
(JPO), 2022 WL 4133258, at *6 (S.D.N.Y. Sept. 12, 2022), aff’d sub nom. Nandkumar v.
AstraZeneca PLC, No. 22-2704, 2023 WL 3477164 (2d Cir. May 16, 2023) (summary
order). A court should not have to “search the long quotations in the complaint for particular
false statements, and then determine on its own initiative how and why the statements were
false and how other facts might show a strong inference of scienter.” Boca Raton Firefighters
& Police Pension Fund v. Bahash, 506 F. App’x 32, 38 (2d Cir. 2012) (summary order); see,
e.g., Lanigan Grp., Inc. v. Li-Cycle Holdings Corp., No. 22-cv-02222 (HG), 2023 WL
6541884, at *4 (E.D.N.Y. Oct. 6, 2023) (complaint which “never identifie[d] with any
specificity what portions of th[e] [challenged] documents or excerpts it t[ook] issue with”
failed to plead with requisite particularity); Plumbers & Steamfitters Loc. 773 Pension Fund v.
Danske Bank A/S, No. 19-cv-00235 (VEC), 2020 WL 4937461, at *3 (S.D.N.Y. Aug. 24,
2020) (complaint which “use[d] two terse paragraphs generically to allege why 36 pages of
quotations spanning 83 paragraphs contain[ed] false or misleading statements” failed to plead
with requisite particularity), aff’d, 11 F.4th 90 (2d Cir. 2021) (“Plumbers II”).
The Court finds that neither the Amended Class-Action Complaint nor the Hoffman
Complaint constitutes “puzzle pleading” warranting dismissal. On the contrary, each
complaint “identifies statements and omissions, describes relevant predicate events, and
alleges how those events make the statements and omissions false or misleading. In doing so,
[each complaint] describes what portion of each quotation constitutes a false representation
and avoids placing the burden on the Court to sort out the alleged misrepresentations and then
match them with the corresponding adverse facts.” Constr. Laborers Pension Tr. for S. Cal.
v. CBS Corp., 433 F. Supp. 3d 515, 530 (S.D.N.Y. 2020) (quotation marks and citation
28

omitted); see, e.g., Kusnier v. Virgin Galactic Holdings, Inc., 639 F. Supp. 3d 350, 368
(E.D.N.Y. 2022) (declining to find impermissible puzzle pleading where the plaintiff
“identified specific statements (and added emphasis where challenged assertions [we]re
embedded in longer passages) and followed each by a list of reasons why those statements
[we]re allegedly misleading”); In re Vale S.A. Sec. Litig., No. 19-cv-00526 (RJD), 2020 WL
2610979, at *18-19 (E.D.N.Y. May 20, 2020) (similar); In re MF Glob. Holdings Ltd. Sec.
Litig., 982 F. Supp. 2d 277, 309 (S.D.N.Y. 2013) (similar); see also In re AppHarvest Sec.
Litig., --- F. Supp. 3d ----, 2023 WL 4866233, at *19 n.5 (S.D.N.Y. July 31, 2023) (“Although
it is true that Plaintiff challenges numerous statements made by Defendants, the breadth of the
Operative Complaint alone does not create the type of puzzle-like complaint that warrants
dismissal.” (brackets, quotation marks, and citation omitted)).
The statements that Plaintiffs allege are false or misleading may be generally divided
into three groups: (1) pre-merger statements, including the Proxy; (2) post-merger statements
regarding Lottery’s finances; (3) and post-merger statements regarding Lottery’s regulatory
compliance and controls. The Court addresses them in turn.
3. Pre-Merger Statements
Statements made prior to the consummation of the merger included:
•

The statement in the 11/19/20 Form 8-K that Lottery “has been a pioneer in the
lottery industry, working closely with state regulators to advance the industry
into the digital age,” Class Compl. ¶ 74 (emphasis omitted);

•

The statement in the 11/19/20 Form 8-K that Lottery “works closely with state
regulators to advance the lottery industry, providing increased revenues and
better regulatory capabilities, while capturing untapped market share, including
millennial players,” id. (emphasis omitted);

•

The statements “regarding Lottery’s work with state regulators,” made in the
State-Regulator Press Releases, that were “the same or substantially similar” to
the statements in the 11/19/20 Form 8-K, id. ¶ 75;

29

•

The Proxy’s financial projections for the 2021 fiscal year, id. ¶ 80;

•

The Proxy’s discussion of regulatory compliance and potential compliance
risks, id. ¶ 78;

•

The absence of a disclosure under Item 303 of Regulation S-K (“Item 303”) in
the Proxy, id. ¶ 82 (referring to 17 C.F.R. § 229.303); and

•

The statements in the 10/21/21 Press Release regarding Lottery’s revenue in
the third quarter of 2021, id. ¶ 83.

Plaintiffs contend that the statements regarding Lottery’s work with state regulators in
the 11/19/20 Form 8-K, the State-Regulator Press Releases, and the Proxy constituted material
misstatements or omissions because, “in fact, [Lottery] was not complying with state and
federal laws concerning the state in which tickets are procured as well as order fulfillment.”
Id. ¶ 76. Plaintiffs assert that, by filing the 7/6/22 Form 8-K, Lottery admitted that these
statements were material misstatements or omissions. Id. ¶¶ 76, 79; see id. ¶ 146 (quoting the
7/6/22 Form 8-K: “The Audit Committee of the Board of the Directors . . . retained outside
counsel to conduct an independent investigation that has revealed instances of noncompliance with state and federal laws concerning the state in which tickets are procured as
well as order fulfillment.” (emphasis omitted)). As for the Proxy’s financial projections for
the 2021 fiscal year and the 10/21/21 Press Release’s statements regarding Lottery’s revenue
in the third quarter of 2021, Plaintiffs argue that they were material misstatements or
omissions “because [Lottery] failed to disclose: (i) that [Lottery] lacked adequate internal
accounting controls, including controls over financial reporting of cash and revenue; (ii) that
[Lottery] was improperly recognizing revenue; and (iii) that [Lottery’s] financial results as to
cash and revenue were materially overstated.” Id. ¶¶ 81, 84. Plaintiffs further contend that
the Proxy was “materially false and misleading because it negligently failed to disclose known
adverse trends and/or uncertainties that Defendants were required to disclose under Item 303,

30

including the fact that [Lottery] was not complying with state and federal laws and overstating
its cash and revenue which would have a material negative impact on [Lottery’s] sales,
revenues, and/or results of operations going forward.” Id. ¶ 82.
i.

The Pre-Merger Regulatory-Compliance Statements

The pre-merger statements regarding regulatory compliance – contained in the
11/19/20 Form 8-K, the State-Regulator Press Releases, and the Proxy – were non-actionable
puffery. “To be ‘material’ within the meaning of § 10(b), the alleged misstatement must be
sufficiently specific for an investor to reasonably rely on that statement as a guarantee of some
concrete fact or outcome which, when it proves false or does not occur, forms the basis for a
§ 10(b) fraud claim.” City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752
F.3d 173, 185 (2d Cir. 2014). “[G]eneral statements about reputation, integrity, and
compliance with ethical norms are inactionable puffery, meaning that they are too general to
cause a reasonable investor to rely upon them.” Id. at 183 (quotation marks and citation
omitted). Such statements “cannot have misled a reasonable investor,” and therefore they
“cannot constitute actionable statements under the securities laws.” San Leandro Emergency
Med. Grp. Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 811 (2d Cir. 1996); accord
Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., 77 F.4th 74, 101 (2d Cir. 2023) (“[T]he duty
to disclose more [information] is triggered only when that which is disclosed is sufficiently
specific to evoke a reasonable investor’s reliance.”).
As presently pleaded, the statements in the 11/19/20 Form 8-K, the State-Regulator
Press Releases, and the Proxy regarding Lottery’s work with state regulators were “too
general to cause a reasonable investor to rely upon them.” City of Pontiac, 752 F.3d at 183
(citation omitted). “Plaintiffs’ claim that these statements were knowingly and verifiably false
when made does not cure their generality, which is what prevents them from rising to the level
31

of materiality required to form the basis for assessing a potential investment.” Id. In other
words, these statements “lack[ed] the sort of definite positive projections that might require
later correction.” In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 245 (2d Cir. 2016) (citation
omitted).
The challenged pre-merger regulatory-compliance statements are akin to other
statements about regulatory compliance and integrity that courts have deemed non-actionable
puffery. See, e.g., Plumbers II, 11 F.4th at 103 (bank asserted that it “strives to conduct our
business in accordance with internationally recogni[z]ed principles in the area of anticorruption”; court held that “no investor would take such statements seriously in assessing a
potential investment because almost every bank makes these statements” (original brackets,
ellipsis, quotation marks, and citation omitted)); Singh, 918 F.3d at 60, 63 (defendant “issued
several public statements concerning [its] commitment to regulatory compliance,” including a
Form 10-K claiming that the defendant had “established policies and procedures to comply
with applicable requirements”; court held that “a reasonable investor would not rely on the . . .
Form 10-K statements as representations of satisfactory compliance,” and explained that
“when [courts] have found that descriptions of compliance efforts amounted to actionable
assurances of actual compliance, the descriptions of such efforts were far more detailed”);
ECA, Loc. 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197,
205-06 (2d Cir. 2009) (defendant’s “numerous misrepresentations regarding its ‘highly
disciplined’ risk management and its standard-setting reputation for integrity” were “no more
than ‘puffery’” and such “statements did not, and could not, amount to a guarantee that its
choices would prevent failures in its risk management practices”); In re Telefonaktiebolaget
LM Ericsson Sec. Litig., --- F. Supp. 3d ----, 2023 WL 3628244, at *10 (E.D.N.Y. May 24,
2023) (collecting cases where “numerous district courts in this Circuit have found general
32

policy- and compliance-related statements . . . to be unactionable”); In re EZCorp., Inc. Sec.
Litig., 181 F. Supp. 3d 197, 206 (S.D.N.Y. 2016) (statement in Form 8-K, which “only
generally mentioned” the defendant’s “efforts on the regulatory front that have been very
successful, eschewing any claims of specific actions taken,” was puffery because a
“reasonable investor could not rely on such general, even equivocal, statements” (bracket,
ellipsis, and citation omitted)).
The cases cited by Plaintiffs are distinguishable. See Lottery Class Opp. at 12-13. In
In re Signet Jewelers Ltd. Securities Litigation, 389 F. Supp. 3d 221, 231 (S.D.N.Y. 2019), the
defendant company – following “a credible accusation” that it “suffered from rampant sexual
harassment” – “sought to reassure the investing public that [it] did not, in fact, have a toxic
workplace.” The defendant “did so by including representations in their periodic SEC filings
that the company expressly ‘denie[d] the allegations,’” “by pointing to [its] corporate policies
(which were incorporated in [the defendant’s] securities filings),” and “by emphasizing that
[its] senior executives held themselves to the highest standards of all.” Id. Given this
“context,” id. at 230, the court held that the defendant’s statements went beyond mere puffery,
see id. at 231. In contrast, as presently pleaded, Lottery’s pre-merger statements about
regulatory compliance arise in a much different context. Therefore, unlike in In re Signet, a
reasonable investor would not understand those statement as concrete responses to credible
accusations of malfeasance. Similarly, in In re Petrobras Securities Litigation, 116 F. Supp.
3d 368, 381 (S.D.N.Y. 2015), the challenged statements were more concrete and less
laudatory than the statements in the instant case. There, too, the court emphasized the context
in which the alleged misrepresentations were made and concluded that because “the
statements were made repeatedly in an effort to reassure the investing public about the
[defendant’s] integrity, a reasonable investor could rely on them as reflective of the
33

[defendant’s] true state of affairs.” Id. That conclusion cannot reasonably be drawn in the
context of the facts alleged here. Finally, in Bricklayers & Masons Local Union No. 5 Ohio
Pension Fund v. Transocean Ltd., 866 F. Supp. 2d 223, 243 (S.D.N.Y. 2012), the defendant
represented that it “conducted ‘extensive’ training and safety programs.” The court explained
that “[i]n an industry as dangerous as deepwater drilling, it is to be expected that investors will
be greatly concerned about an operator’s safety and training efforts,” so it declined to “say, as
a matter of law, that [the defendant’s] representation that such efforts were extensive was
obviously unimportant to [its] shareholders.” Id. at 244 (quotation marks omitted). The Court
does not doubt that lottery-industry investors are concerned about a company’s compliance
with the law. Nevertheless, the Court concludes that, as pleaded, Lottery’s pre-merger
statements about regulatory compliance do not rise above “[g]eneric, indefinite statements of
corporate optimism.” Abramson, 965 F.3d at 173.
ii.

The Proxy’s Financial Projections

The Proxy’s revenue, EBITDA, and profit projections for the full 2021 fiscal year are
protected by the bespeaks-caution doctrine.
“Two doctrines – one statutory, the other judge-made – protect certain forwardlooking statements from serving as the basis for claims of securities fraud.” Garnett v. RLX
Tech. Inc., 632 F. Supp. 3d 574, 597 (S.D.N.Y. 2022) (citation omitted), aff’d sub nom. Tseng
v. De Vries, No. 22-2787, 2023 WL 8073087 (2d Cir. Nov. 21, 2023) (summary order).
“First, the Private Securities Litigation Reform Act of 1995 creates a statutory ‘safe harbor’
for certain statements.” Id. (brackets and citation omitted). “Second, courts have long
protected forward-looking statements, even those made in connection with an IPO, under the
bespeaks-caution doctrine.” Id. (citation omitted). The PSLRA safe harbor does not apply to
any forward-looking statement that is “included in a financial statement prepared in
34

accordance with generally accepted accounting principles,” 15 U.S.C. § 78u-5(b)(2)(A), and
the Proxy itself states that its “financial statements were prepared in conformity with U.S.
GAAP,” Proxy at 186. Therefore, only the bespeaks-caution doctrine may apply to the Proxy.
Under the bespeaks-caution doctrine, a “forward-looking statement accompanied by
sufficient cautionary language is not actionable because no reasonable investor could have
found the statement materially misleading.” Iowa Pub. Emps.’ Ret. Sys. v. MF Glob., Ltd.,
620 F.3d 137, 141 (2d Cir. 2010) (“IPERS I”). The question thus becomes (1) whether the
Proxy’s 2021 financial projections were forward-looking statements, and (2) if so, whether
they were accompanied by sufficient cautionary language.
The Court holds that the Proxy’s 2021 financial projections were forward-looking
statements. “As a general rule, statements whose truth cannot be ascertained until some time
after the time they are made are forward-looking statements.” In re Philip Morris, 89 F.4th at
428 (quotation marks and citation omitted). Under this standard, the Proxy’s financial
projections were forward-looking statements because they were predictions made in October
2021 about the company’s financial performance for all of 2021, and thus their truth
necessarily could not be assessed until 2021 had concluded. Because these statements
“project[ed] results in the future,” they are “plainly forward-looking.” Slayton v. Am. Express
Co., 604 F.3d 758, 769 (2d Cir. 2010); accord Gissin v. Endres, 739 F. Supp. 2d 488, 507
(S.D.N.Y. 2010) (statements “cast in predictive terms . . . are by definition forward-looking”).
The Court also holds that the Proxy’s 2021 financial projections were accompanied by
sufficient cautionary language. Generally, cautionary language must “not [be] boilerplate”
and must “convey[] substantive information.” Slayton, 604 F.3d at 772. “Plaintiffs may
[overcome cautionary language] by showing, for example, that the cautionary language did
not expressly warn of or did not directly relate to the risk that brought about plaintiffs’ loss.”
35

Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 359 (2d Cir. 2002); accord In re Veeco
Instruments, Inc. Sec. Litig., 235 F.R.D. 220, 235 (S.D.N.Y. 2006) (the bespeaks-caution
doctrine “applies only where the cautionary language is reasonably specific as opposed to
generic or boilerplate so as to constitute a real warning to investors”). The Court rejects
Plaintiffs’ contention that the Proxy’s cautionary language was inadequate. See Lottery Class
Opp. at 23-25.
The Proxy warned that Lottery “ha[d] not been required to document and test [its]
internal controls over financial reporting,” and that Lottery’s management and auditors had
not previously spoken publicly about the effectiveness of the company’s internal controls.
Proxy at 74. It also cautioned that the failure to maintain adequate internal controls “ha[d]
resulted in and could result in material weaknesses which could lead to errors in [Lottery’s]
financial reporting, which could adversely affect [its] business.” Id. The Proxy further noted
that Lottery had identified an existing “material weakness in [its] internal control over
financial reporting” relating to “the design and operation of the financial statement close and
reporting controls,” that this weakness “remain[ed] unremediated,” and that this weakness
“could result” in Lottery’s financial statements containing material misstatements. Id. In
short, the Proxy addressed the very risk that Plaintiffs allege it failed to disclose: that Lottery
“lacked adequate internal accounting controls, including controls over financial reporting of
cash and revenue,” and that the Proxy’s statements regarding revenue and cash could therefore
be inaccurate. Class Compl. ¶ 81. Hence, the Proxy’s cautionary language sufficiently
warned about this risk.
iii.

The Proxy and Item 303

The warnings provided in the Proxy also discharged Defendants’ obligations under
Item 303 with respect to the Proxy. In relevant part, Item 303 of Regulation S-K required the
36

Proxy to “[d]escribe any known trends or uncertainties that have had or that are reasonably
likely to have a material favorable or unfavorable impact on net sales or revenues or income
from continuing operations.” 17 C.F.R. § 229.303(b)(2)(ii); see Lottery Class Opp. at 22-23.
Item 303 requires disclosure “where the trend is both (1) known to management and
(2) reasonably likely to have material effects on the registrant’s financial condition or results
of operations.” Stadnick v. Vivint Solar, Inc., 861 F.3d 31, 39 (2d Cir. 2017) (quotation marks
and citation omitted). Significantly, “Item 303 requires the registrant to disclose only those
trends, events, or uncertainties that it actually knows of when it files the relevant report with
the SEC. It is not enough that it should have known of the existing trend, event, or
uncertainty.” Iowa Pub. Emps.’ Ret. Sys. v. SAIC, Inc., 818 F.3d 85, 95 (2d Cir. 2016)
(“IPERS II”) (emphasis added).
Plaintiffs argue that the Proxy “failed to disclose . . . the fact that [Lottery] was not
complying with state and federal laws and overstating its cash and revenue which would have
a material negative impact on [Lottery’s] sales, revenues, and/or results of operations going
forward.” Class Compl. ¶ 82. This argument fails.
Regarding noncompliance with state and federal laws, Plaintiffs do not sufficiently
allege that management “actually kn[ew]” about this noncompliance “when it file[d] [the
Proxy] with the SEC.” IPERS II, 818 F.3d at 95. To be sure, in the 7/6/22 Form 8-K,
“Lottery disclosed that an internal investigation had uncovered ‘instances of non-compliance
with state and federal laws concerning the state in which tickets are procured as well as order
fulfillment.’” Class Compl. ¶ 63 (emphasis omitted). Even if the Court indulges Plaintiffs’
invitation to speculate (without further factual underpinning) that “those past violations were
ongoing at the time the Proxy Statement was issued,” Komissarov Opp. at 21, Plaintiffs do not

37

allege that Lottery’s management “actually kn[ew]” about the noncompliance when the Proxy
was filed, IPERS II, 818 F.3d at 95.
Meanwhile, by virtue of the cautionary statements discussed in the previous section,
Defendants also complied with the duty to disclose known risks about the accuracy of the
Proxy’s cash and revenue statements. Thus, with respect to the Proxy, Defendants discharged
any duty to disclose under Item 303. 6
iv.

The 10/21/21 Press Release

The 10/21/21 Press Release’s statements regarding Lottery’s preliminary revenue
results are nonactionable under the bespeaks-caution doctrine because they, too, are
“statements whose truth [could not] be ascertained until some time after the time they [we]re
made.” In re Philip Morris, 89 F.4th at 428 (citation omitted). Plaintiffs contend that these
statements were “simply not forward-looking” because they “concern[ed] revenue results for
Q3 2021, a quarter that had already closed when the statement was made.” Lottery Class
Opp. at 13. Although this line of reasoning has some intuitive appeal, the Court disagrees.
When applying the bespeaks-caution doctrine, courts in the Second Circuit generally treat
“corporate statements of projections as to corporate earnings” as forward-looking statements,
“without regard to whether the last day of the covered earnings period had passed.” Lopez v.
Ctpartners Exec. Search Inc., 173 F. Supp. 3d 12, 39 (S.D.N.Y. 2016).

6

In their opposition to Lottery’s motion to dismiss, the Class Plaintiffs suggest that Item
303’s disclosure obligations also applied to subsequent statements, including those statements
involving the (allegedly nonexistent) sale of $30 million in LotteryLink Credits. See Lottery
Class Opp. at 22-23. But the Amended Class-Action Complaint raises Item 303 only with
respect to the Proxy, see Class Compl. ¶ 82, and the Hoffman Complaint does not make any
claim based on Item 303, see generally Hoffman Compl. “[T]he law is clear that a party may
not amend pleadings through a brief.” Gamma Traders - I LLC v. Merrill Lynch
Commodities, Inc., 41 F.4th 71, 80 (2d Cir. 2022) (quotation marks and citation omitted).
Thus, the Court will not engraft additional Item 303-based claims onto either complaint.
38

Lopez is on point. In relevant part, the case involved a press release issued on January
21, 2015, announcing the company’s “preliminary earnings results.” Id. “[T]he release said
that the [c]ompany ‘expected’ earnings per share of $0.06 to $0.08 per share for [the fourth
quarter of 2014].” Id. The court rejected as “incorrect” the plaintiff’s argument that these
preliminary results did not “qualify as a forward-looking statement, because they addressed a
quarter that was complete.” Id. It noted that just because “a quarter has concluded does not
mean that the quarter’s results have yet been tabulated.” Id. And it explained that the press
release’s statement of preliminary results “was a forward-looking projection, insofar as it gave
a ‘preliminary’ calculation of what the final quarterly financial results would be ‘based on
currently available financial and operating information and management’s preliminary
analysis of the unaudited financial results for the quarter.’” Id. at 40 (quoting the press release
at issue). “In other words, the preliminary results were a prediction, based on incomplete or
provisional information, of what the [c]ompany would ultimately declare its financial
performance to have been.” Id.
The Court agrees with Lopez’s reasoning and adopts it here. Accordingly, the Court
holds that the 10/21/21 Press Release’s revenue-related statements were forward-looking
statements. The Court also holds that the 10/21/21 Press Release’s notice regarding forwardlooking statements contained “sufficient cautionary language” to render the 10/21/21 Press
Release “not actionable,” IPERS I, 620 F.3d at 141, at least with respect to Plaintiffs’ theory
that Defendants failed to disclose that Lottery “lacked adequate internal accounting controls,
including controls over financial reporting of cash and revenue,” with potential consequences
for the accuracy of Lottery’s financial statements, Class Compl. ¶ 84; see 10/21/21 Press
Release at 5-6 (warning that “the forward-looking statements contained in this press release
are subject to [various] factors,” including Lottery’s “ability to maintain effective internal
39

controls over financial reporting,” and that if this risk “materialize[d],” the “actual results . . .
could differ materially from those expressed in any forward-looking statements”).
In sum, none of the pre-merger statements challenged by Plaintiffs was materially
false or misleading. Defendants’ motions to dismiss are granted with respect to the claims in
the Amended Class-Action Complaint and the Hoffman Complaint that rely on the pre-merger
statements.
The Class Plaintiffs “concede that Mr. Komissarov is not responsible for statements
made after the [merger] was effectuated on October 29, 2021.” Komissarov Opp. at 14 n.5.
Because none of the Class Plaintiffs’ claims against Komissarov survives – and because
Hoffman makes no claims against Komissarov, see generally Hoffman Compl. – the Court
declines to reach the parties’ remaining arguments regarding asserted bases for dismissing the
claims against Komissarov.
4. Post-Merger Financial-Performance-Related Statements
This set of statements includes:
•

The statements in the 11/15/21 Form 8-K and the 11/15/21 Form 8-K/A
regarding Lottery’s finances for the third quarter of 2021, Class Compl. ¶¶ 65,
85, 89;

•

The statements in the 3/31/22 Form 8-K and the 2021 Annual Report regarding
Lottery’s finances for the fourth quarter of 2021 and for 2021 overall, id. ¶¶ 66,
91; and

•

The statements in the 5/16/22 Form 8-K and the Q1 2022 Report regarding
Lottery’s finances for the first quarter of 2022, id. ¶¶ 67, 70, 95.

Plaintiffs contend that these statements were materially false or misleading because
they accounted for Lottery’s purported sale of $30 million in affiliate-marketing credits – a
sale that, Plaintiffs allege, never happened. See, e.g., id. ¶¶ 66, 70; Lottery Class Opp. at 3-5,
9.

40

None of the post-merger financial-performance-related statements was a forwardlooking statement, so none can benefit from the PSLRA safe harbor or the bespeaks-caution
doctrine. See 15 U.S.C. § 78u-5(a) (the PSLRA safe harbor “shall apply only to a forwardlooking statement”); IPERS I, 620 F.3d at 142 (“It is settled that the bespeaks-caution doctrine
applies only to statements that are forward-looking.”); see also P. Stolz Fam. P’ship v. Daum,
355 F.3d 92, 96-97 (2d Cir. 2004) (“[T]he misrepresentation of present or historical facts
cannot be cured by cautionary language.”). Unlike the financial projections in the Proxy and
the 10/21/21 Press Release, none of the post-merger financial-performance-related statements
labeled itself a preliminary estimate. And there is no other reason to believe that these
statements’ truth could only be “ascertained . . . some time after the time they are made.” In
re Philip Morris, 89 F.4th at 428 (citation omitted). 7
Defendants contend that Plaintiffs have failed to plead sufficient facts to establish the
“contemporaneous falsity” of the post-merger financial-performance-related statements.
Lottery Class Br. at 8 (emphasis omitted); see id. (“A violation of Section 10(b) and Rule 10b5 premised on misstatements cannot occur unless an alleged material misstatement was false
at the time it was made.” (emphasis omitted) (quoting In re Lululemon Sec. Litig., 14 F. Supp.
3d 553, 571 (S.D.N.Y. 2014) (“Lululemon I”), aff’d, 604 F. App’x 62 (2d Cir. 2015)
(“Lululemon II”) (summary order))). The Court accepts the general principle that, for an
affirmative misrepresentation of fact to be actionable, the factual assertion must have been

7

The fact that some of the financial statements were labeled as “unaudited” does not require a
different conclusion. See, e.g., 3/31/22 Form 8-K at 9, 11. “[T]he facts and circumstances of
the language used in a particular report will determine whether a statement is adequately
identified as forward-looking.” Slayton, 604 F.3d at 769. Other than stating that the financial
results were “unaudited,” nothing in any of the documents containing the post-merger
financial-performance-related statements gives any indication that those statements were
forward-looking. And Lottery knew how to communicate that its financial announcements
were forward-looking – as it did, for example, in the Proxy and the 10/21/21 Press Release.
41

false when made. See, e.g., Plumbers II, 11 F.4th at 103; San Leandro, 75 F.3d at 812.
Plaintiffs’ allegations have satisfied this standard.
As noted, Rule 9(b) requires a securities-fraud complaint to “explain why the
[challenged] statements were fraudulent.” In re Synchrony, 988 F.3d at 167 (citation omitted).
Thus, in San Leandro, the Second Circuit held that the complaint should be dismissed because
it “lack[ed] sufficient allegations demonstrating the falsity of any statements made by [the
defendant] during the class period.” 75 F.3d at 812. One allegation was “that, although [the
defendant] represented to the market that retail sales were strong, retail sales were declining at
a rate of 8.3 percent – significantly higher than the previously announced rate of 2.5 percent.”
Id. Yet the plaintiffs “allege[d] no circumstances to support their allegation that the allegedly
false statements, made at least three weeks before the 8.3 percent figure was announced, were
false at the time made. Plaintiffs’ unsupported general claim of the existence of confidential
company sales reports that revealed the larger decline in sales [wa]s insufficient to survive a
motion to dismiss.” Id.
Subsequent decisions have cited this portion of San Leandro for the proposition that “a
material misstatement must be false at the time it was made.” In re Express Scripts Holdings
Co. Sec. Litig., 773 F. App’x 9, 12 (2d Cir. 2019) (summary order); see also Bristol Cnty. Ret.
Sys. v. Adient PLC, No. 20-3846, 2022 WL 2824260, at *1 (2d Cir. July 20, 2022) (summary
order) (“A statement is false for the purpose of Section 10(b) and Rule 10b-5 if it was false at
the time it was made.”); Lululemon II, 604 F. App’x at 63 (affirming dismissal of complaint
which “failed adequately to plead that any of the statements attributed to the defendants were
materially misleading at the time that they were made”).
Defendants, however, assert an additional corollary of San Leandro: that “a statement
believed to be true when made, but later shown to be false, is insufficient” to establish that a
42

statement of fact is false for purposes of Section 10(b) and Rule 10b-5. Lottery Class Br. at 8
(quoting Lululemon I, 14 F. Supp. 3d at 571). Defendants cite no binding precedent
supporting this proposition, and the Court is aware of none. Certainly, San Leandro does not
so hold. Further, Defendants’ preferred understanding would effectively (and improperly)
collapse the falsity and scienter inquiries.
The chief authority relied upon by Defendants for this point is Lululemon I. See, e.g.,
id.; Komissarov Br. at 16. Lululemon I cited San Leandro for the proposition that a
“statement believed to be true when made, but later shown to be false, is insufficient.” 14 F.
Supp. 3d at 571. Lululemon I also purported to quote San Leandro as stating that “[f]alsity is
a failure to be truthful – it is not a misapprehension, misunderstanding, or mistake of fact at
the time a statement was made.” Id. Problematically, however, no such statement appears in
San Leandro. Lululemon I apparently intended to quote C.D.T.S. v. UBS AG, No. 12-cv04924 (KBF), 2013 WL 6576031, at *3 (S.D.N.Y. Dec. 13, 2013), aff’d sub nom. Westchester
Teamsters Pension Fund v. UBS AG, 604 F. App’x 5 (2d Cir. 2015) (summary order). For its
part, C.D.T.S. cited a single case in support: San Leandro. But San Leandro did not hold that
falsity centers on whether the fact was “believed to be true when made.” Rather, C.D.T.S.
asserted that such a requirement exists, and Lululemon I parroted C.D.T.S. on this point.
Notably, the Second Circuit affirmed C.D.T.S. solely on scienter grounds. See
Westchester Teamsters, 604 F. App’x at 7. In a footnote, the court stated:
We disagree with the district court’s suggestion in its analysis of
the first element (material misrepresentation or omission) that
Plaintiffs had to show that a Defendant “k[new] (or ha[d] reason
to know) at the time that he was making an alleged statement
that the statement was in fact false.” C.D.T.S. v. UBS AG, No.
12 Civ. 4924, 2013 WL 6576031, at *4 (S.D.N.Y. Dec. 13,
2013). Plaintiffs need not demonstrate Defendants had
knowledge or a belief that they were making “a material
misrepresentation or omission” in order to satisfy the element.
43

Rather, to prove this first element Plaintiffs need show only that
a false statement was made or that an omission of material fact
occurred.
Id. at 7 n.2 (brackets in original). Thus, the Second Circuit (albeit in a summary order)
squarely rejected the theory of falsity advanced in C.D.T.S. And although the Second Circuit
also affirmed Lululemon I by summary order in Lululemon II, the latter conspicuously
declined to state that, with respect to statements of fact, a plaintiff must plead that the
defendant knew that it was making a false statement.
Accordingly, the Court find unpersuasive the cases cited by Defendants that rely on
C.D.T.S. and its progeny or otherwise employ similar reasoning. See, e.g., Lottery Class Br.
at 9 (quoting Francisco v. Abengoa, S.A., 481 F. Supp. 3d 179, 210 (S.D.N.Y. 2020));
Komissarov Br. at 17 (same); Lottery Class Reply at 2 (quoting Ressler v. Liz Claiborne, Inc.,
75 F. Supp. 2d 43, 52 (E.D.N.Y. 1998), aff’d sub nom. Fishbaum v. Liz Claiborne, Inc., 189
F.3d 460, 1999 WL 568023 (2d Cir. 1999) (unpublished table decision)). The Court
recognizes that Fishbaum adopted a reading of San Leandro similar to the reading advanced
by Defendants. See Fishbaum, 1999 WL 568023, at *3 (citing San Leandro for the
proposition that a “plaintiff must detail specific contemporaneous information known to the
defendant that was inconsistent with the representation in question”). Westchester Teamsters
and Fishbaum are both unpublished decisions, so neither case is binding precedent here. See
Jackler v. Byrne, 658 F.3d 225, 244 (2d Cir. 2011); Monterey Bay Mil. Hous., LLC v. Ambac
Assurance Corp., 531 F. Supp. 3d 673, 713 (S.D.N.Y. 2021). Still, a court may “consider
summary orders for their persuasive value.” Force v. Facebook, Inc., 934 F.3d 53, 66 n.21
(2d Cir. 2019) (citation omitted). For the reasons stated herein, the Court finds Westchester
Teamsters more persuasive than Fishbaum in the context of assessing the falsity of a
statement of fact, so the Court follows the former instead of the latter. “Whether Defendants
44

knew of their falsity when making the statements is the scienter question, not the falsity
question.” Venkataraman v. Kandi Techs. Grp., Inc., No. 20-cv-08082 (LGS), 2022 WL
4225562, at *6 (S.D.N.Y. Sept. 13, 2022).
In turn, the Court holds that Plaintiffs have plausibly alleged that each of the postmerger financial-performance-related statements was “false [or misleading] at the time it was
made.” In re Express Scripts, 773 F. App’x at 12. This conclusion follows from Lottery’s
admissions that: (1) Lottery “overstated its available unrestricted cash balance by
approximately $30 million,” 7/15/22 Form 8-K at 3; (2) during the 2021 fiscal year, Lottery
“improperly recognized revenue in the same amount,” id.; (3) Lottery’s auditor determined
that “the audited financial statements for the year ended December 31, 2021, and the
unaudited financial statements for the quarter ended March 31, 2022, should no longer be
relied upon,” 7/22/22 Form 8-K at 1; and (4) a subsidiary of Lottery “entered into a line of
credit in January 2022 that was not disclosed in the footnotes to the December 31, 2021
financial statements and was not recorded in the March 31, 2022 financial statements,” id.; see
Class Compl. ¶¶ 69, 71; Lottery Class Opp. at 9.
Defendants assert that the remarks in the 7/15/22 Form 8-K and the 7/22/22 Form 8-K
are irrelevant because “restated financials are ‘not an admission of wrongdoing.’” Lottery
Class Reply at 2 (quoting SEC v. Espuelas, 908 F. Supp. 2d 402, 410 (S.D.N.Y. 2012)).
Troublingly, Defendants quote Espuelas for the opposite of its holding. In Espuelas, the court
rejected the defendant’s argument that, because “a restatement is not an admission of
wrongdoing,” summary judgment should be granted. Id. The court instead held that “the
restatement is fairly considered” on summary judgment because “the SEC need only establish
at this stage a genuine issue of material fact as to whether [the company’s] filings materially
misstated the quality or quantity of revenue.” Id. In a footnote, the court added that “[t]he
45

same is true on a motion to dismiss: Although a restatement is not an admission of
wrongdoing, the mere fact that financial results were restated is sufficient basis for pleading
that those statements were false when made.” Id. at 410 n.5 (quotation marks and citation
omitted; emphasis added).
Other courts in this District have likewise held that “misreported financial data are
false statements of fact.” Africa v. Jianpu Tech. Inc., No. 21-cv-01419 (JMF), 2022 WL
4537973, at *9 (S.D.N.Y. Sept. 28, 2022) (ellipsis and citation omitted); see, e.g.,
Venkataraman, 2022 WL 4225562, at *2, *6 (“[The company] filed a Form 8-K disclosing
that its financial statements for 2014, 2015 and the first three quarters of 2016 would need to
be restated. . . . Contrary to Defendants’ argument, this is not an allegation of ‘fraud by
hindsight,’ but rather an admission by [the company] that earlier statements were false when
made.”); Fresno Cnty. Emps.’ Ret. Ass’n v. comScore, Inc., 268 F. Supp. 3d 526, 544
(S.D.N.Y. 2017) (“In light of comScore’s admission that it must restate its financial
statements, there can be no dispute that the SAC pleads numerous false and misleading
misstatements with respect to revenue, revenue related metrics, and comScore’s compliance
with GAAP.”); Varghese v. China Shenghuo Pharm. Holdings, Inc., 672 F. Supp. 2d 596, 606
(S.D.N.Y. 2009) (“Misreported financial information clearly amounts to a false statement of
fact.”); 380544 Can., Inc. v. Aspen Tech., Inc., 544 F. Supp. 2d 199, 217 (S.D.N.Y. 2008)
(“The Individual Defendants do not, and cannot, dispute the actual falsity of the financial
statements that were contained in Aspen’s press releases and SEC filings for the thirteen
quarters at issue and were subsequently restated in the Amended Form 10-K.”). The Court
agrees with their reasoning and follows it here.
Defendants alternatively argue that the post-merger financial-performance-related
statements were statements of opinion, rather than statements of fact, and that Plaintiffs have
46

failed to satisfy Omnicare’s pleading standard for statements of opinion. See, e.g., C&D
Class Br. at 17 (“[A]s to the overstatement of revenue and cash, the recognition of revenue
under GAAP calls for ‘the exercise of judgment’ or a ‘subjective evaluation’ about a
particular transaction, [and therefore] it too is a statement of opinion.” (quoting In re AmTrust
Fin. Servs., Inc. Sec. Litig., No. 17-cv-01545 (LAK), 2019 WL 4257110, at *14 (S.D.N.Y.
Sept. 19, 2019) (“AmTrust I”)); C&D Class Reply at 6-7 (urging the Court to follow
AmTrust I instead of Espuelas and Varghese).
The Court is unconvinced. Defendants rely heavily on AmTrust I. But in DeCarlo, 80
F.4th at 169-76, the Second Circuit reversed in relevant part In re AmTrust Financial Services,
Inc. Securities Litigation, No. 17-cv-01545 (LAK), 2020 WL 2787117 (S.D.N.Y. Apr. 20,
2020) (“AmTrust II”) – and AmTrust II had essentially reiterated the holdings of AmTrust I.
DeCarlo, not AmTrust I or AmTrust II, guides the Court’s analysis here.
The defendant in DeCarlo restated five years of financial results, including income
and earnings. See 80 F.4th at 167. “The restatement identified two material accounting
errors.” Id. One involved the treatment of revenue from warranty contracts, and the other
concerned the treatment of employee bonuses as expenses. See id. The district court had
“determined that [the originally issued] financial statements reflected the exercise of
subjective judgment and were thus non-actionable statements of opinion.” Id. at 169.
The Second Circuit “disagree[d]” with the district court. Id. At the outset, the Second
Circuit observed that Omnicare had “unequivocally rejected the proposition that there can be
no liability based on a statement of opinion unless the speaker disbelieved the opinion at the
time it was made.” Id. (quotation marks and citation omitted). Indeed, Omnicare made clear
that “a statement of opinion may be actionable . . . if it contains an embedded statement of fact
that is not true,” or if it “omits material facts about the [defendant’s] inquiry into or
47

knowledge concerning a statement of opinion” that “conflict with what a reasonable investor
would take from the statement.” Id. at 171 (citation omitted).
The Second Circuit then turned to the plaintiffs’ claims based on the revenuerecognition and bonus-expensing issues. Starting with the former, the Second Circuit noted
the defendant’s concession that its previous method of revenue recognition was improper
under GAAP. See id. at 172 & n.9. Despite this fact, the district court had “concluded that
the restated financial statements were non-actionable opinions because determining the
sufficiency of historical evidence that would support [the defendant’s previous method of
revenue recognition] ‘inherently requires a subjective judgment as to whether the exception
applies.’” Id. at 173. As the Second Circuit explained, however, “subjective judgments about
the sufficiency of historical evidence to support a particular accounting treatment presuppose
the existence of some historical evidence.” Id. at 174. And “no one disputes that GAAP
permits [the defendant’s previous method of revenue] recognition only if some historical
evidence justified doing so.” Id. “At the pleading stage, . . . the alleged absence of such
evidence, if accepted as true, means that [the defendant’s] representations about the warranty
contract revenue reported in its historical consolidated financial statements misled investors to
conclude that the company was aware of some historical evidence in support of [the previous
method of revenue recognition], when in (alleged) fact it was not.” Id. “In other words, [the
defendant] is plausibly alleged to have ‘sa[id] one thing and [held] back another.’” Id. (first
alteration added) (quoting Omnicare, 575 U.S. at 192).
Regarding the bonus-expensing issue, the Second Circuit “assum[ed] without
deciding” that the statements at issue were statements of opinion. Id. at 175. Even granting
this concession, the Second Circuit held that the plaintiffs had plausibly alleged that these
statements of opinion were actionable. See id. at 175-76. In dicta, the Second Circuit opined
48

that the plaintiffs may also “have plausibly alleged that [the defendant’s previous] method [of
expensing bonuses] was objectively improper rather than an exercise of subjective judgment”
– that is, that the bonus-expensing statements were statements of fact rather than statements of
opinion. Id. at 175. The Second Circuit explained:
Although multiple accounting standards may have been relevant
to determining when to expense a bonus, all of the standards in
play here support the position that [the defendant’s previous
method of expensing bonuses was wrong]. We are not aware of
a GAAP provision on which [the defendant] relied that suggests
otherwise. And the fact that these GAAP standards, together or
alone, are subject to misreading, misinterpretation, or
misapplication, as happened here, does not necessarily mean
that they entail an exercise of subjective judgment.
Id. (footnote omitted).
Applying Omnicare and DeCarlo to the facts of this case – and taking a cue from
DeCarlo’s reasoned dicta – the Court first holds that the post-merger financial-performancerelated statements were statements of fact, not statements of opinion. To be sure, “GAAP is
not the lucid or encyclopedic set of pre-existing rules that [some] might perceive it to be. Far
from a single-source accounting rulebook, GAAP encompasses the conventions, rules, and
procedures that define accepted accounting practice at a particular point in time.” Shalala v.
Guernsey Mem’l Hosp., 514 U.S. 87, 101 (1995) (quotation marks and citation omitted). But
surely any GAAP standard that might be “in play” would “support the position” that, for
example, claiming to have sold $30 million of a product – when no such sale took place –
contravenes GAAP. DeCarlo, 80 F.4th at 175. The Court is “not aware of a GAAP provision
on which [Defendants] relied that suggests otherwise.” Id. Certainly, Defendants have not
named a GAAP provision which might have justified the errors alleged. Moreover, “the fact
that [certain] GAAP standards, together or alone, are subject to misreading, misinterpretation,

49

or misapplication . . . does not necessarily mean that they entail an exercise of subjective
judgment.” Id.
The Court alternatively holds that even if they are deemed statements of opinion, the
post-merger financial-performance-related statements were false or misleading statements of
opinion. “[N]o one disputes that GAAP permits [claiming to have sold $30 million of a
product] only if some historical evidence justified doing so.” Id. at 174. Plaintiffs have
plausibly alleged the “absence of such evidence.” Id.; see, e.g., Class Compl. ¶ 70 (“The July
15, 2022 disclosure of a $30 million cash overstatement represents an admission that the $30
million ‘sale’ of LotteryLink Credits previously announced on November 15, 2021, was
entirely fabricated, and that Defendants faked the collection of that money in order to create
the illusion of revenues.”). Accepting these allegations as true, Defendants’ various
representations about the revenue and resulting cash holdings from the fabricated LotteryLink
Credits sales “misled investors to conclude that the company was aware of some historical
evidence in support of [the existence of $30 million in LotteryLink Credits sales], when in
(alleged) fact it was not.” DeCarlo, 80 F.4th at 174. In short, Plaintiffs have plausibly
alleged that Defendants “said one thing and held back another.” Id. (brackets and citation
omitted).
Plaintiffs have also sufficiently alleged that the post-merger financial-performancerelated statements were material. “Because materiality involves a ‘fact-specific inquiry,’ it
can be decided on a motion to dismiss only if ‘reasonable minds cannot differ on the question
of materiality.’” Plumbers II, 11 F.4th at 101 (first quoting Basic Inc. v. Levinson, 485 U.S.
224, 240 (1988); and then quoting TSC Indus. Inc. v. Northway, Inc., 426 U.S. 438, 450
(1976)). The statements at issue “concern[ed] [Lottery’s] reported revenue, which is the exact
type of information that would be important to a reasonable investor.” SEC v. MiMedx Grp.,
50

Inc., No. 19-cv-10927 (NRB), 2022 WL 902784, at *9 (S.D.N.Y. Mar. 28, 2022). Indeed,
“earnings reports are among the pieces of data that investors find most relevant to their
investment decisions.” Ganino v. Citizens Utils. Co., 228 F.3d 154, 164 (2d Cir. 2000)
(citation omitted; emphasis added). Hence, Plaintiffs have adequately alleged that “a
reasonable investor would have considered” the statements at issue to be “significant in
making investment decisions.” DeCarlo, 80 F.4th at 182 (citation omitted).
Of course, “allegations of GAAP violations or accounting irregularities, standing
alone, are insufficient to state a securities fraud claim. Only where such allegations are
coupled with evidence of corresponding fraudulent intent might they be sufficient.” Novak v.
Kasaks, 216 F.3d 300, 309 (2d Cir. 2000) (quotation marks and citations omitted). But falsity
and scienter must not be conflated. The Court concludes that Plaintiffs have plausibly alleged
that the post-merger financial-performance-related statements were material
misrepresentations or omissions.
5. Other Post-Merger Statements
This set of statements includes:
•

The discussions of financial-reporting issues in the Q3 2021 Report, the 2021
Annual Report, and the Q1 2022 Report, Class Compl. ¶¶ 87, 93, 97;

•

The SOX certifications signed by DiMatteo and Dickinson for each of
Lottery’s financial statements issued during the Class Period, id. ¶ 99; and

•

The 2021 Annual Report’s discussion of regulatory compliance, id. ¶ 62.

Plaintiffs contend that the challenged statements in the Q3 2021 Report, the 2021
Annual Report, the Q1 2022 Report, and the SOX certifications constituted material
omissions because “Defendants failed to disclose or indicate” that Lottery “lacked adequate
internal controls, including but not limited to accounting controls over financial reporting of
cash and revenue”; that Lottery “was claiming it had cash that it did not have and was
51

improperly recognizing revenue”; and that, as a result, Lottery’s “financial results were
materially overstated.” Id. ¶ 100; see also id. ¶¶ 87, 94, 98. Plaintiffs also argue that the 2021
Annual Report’s discussion of regulatory compliance was an actionable omission because
Lottery “admitted” in the 7/6/22 Form 8-K that “an internal investigation had uncovered
‘instances of non-compliance with state and federal laws concerning the state in which tickets
are procured as well as order fulfillment.’” Id. ¶ 63 (emphasis omitted).
i.

The Discussions of Financial-Reporting Issues in the Q3
2021 Report, the 2021 Annual Report, and the Q1 2022
Report

Plaintiffs have plausibly alleged that the discussions of financial-reporting issues in the
Q3 2021 Report, the 2021 Annual Report, and the Q1 2022 Report contained material
omissions. “Even when there is no existing independent duty to disclose information, once a
company speaks on an issue or topic, there is a duty to tell the whole truth.” Meyer v.
Jinkosolar Holdings Co., 761 F.3d 245, 250 (2d Cir. 2014); accord Abramson, 965 F.3d at
175 (“[W]hen a statement of opinion implies facts or the absence of contrary facts, and the
speaker knows or reasonably should know of different material facts that were omitted,
liability under Rule 10b-5 may follow.”). Each report discussed the company’s internal
controls over financial reporting. Yet all three reports failed to disclose that the purported sale
of $30 million of LotteryLink Credits never happened, and that the corresponding cash and
revenue statements were overstated by $30 million. See Class Compl. ¶¶ 69-70. And both the
2021 Annual Report (published on April 1, 2022) and the Q1 2022 Report (published on May
16, 2022) failed to disclose that a subsidiary of Lottery “entered into a line of credit in January
2022 that was not disclosed in the footnotes to the December 31, 2021 financial statements
and was not recorded in the March 31, 2022 financial statements.” Id. ¶ 71 (emphasis
omitted).
52

The Q3 2021 Report stated that Lottery’s “certifying officers” had “concluded that,
due solely to” a technical accounting issue identified by the SEC in a staff statement,
Lottery’s “disclosure controls and procedures were not effective as of September 30, 2021.”
Id. ¶ 87 (emphasis omitted). But “[o]ther than” that, “there were no changes in [Lottery’s]
internal control over financial reporting . . . during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, [its] internal control over
financial reporting.” Id. (emphasis omitted). The Q3 2021 Report also discussed Lottery’s
“plan[s] to enhance [its] processes to identify and appropriately apply applicable accounting
requirements.” Id. (emphasis omitted). The Q3 2021 Report did not mention that the
11/15/21 Form 8-K, released that same day, touted revenue and cash figures based on a $30
million sale of LotteryLink Credits that never transpired. See generally Q3 2021 Report.
The 2021 Annual Report noted that Lottery’s “management ha[d] identified a material
weakness in internal control over financial reporting as of December 31, 2021 and 2020
relating to deficiencies in the design and operation of the procedures relating to the closing of
our financial statements.” Class Compl. ¶ 93 (emphasis omitted). The 2021 Annual Report
listed four “deficiencies” and told investors that Lottery had “commenced measures to
remediate” these issues. Id. But it made no mention of the allegedly sham LotteryLink
Credits sale or the subsidiary’s line of credit. See generally 2021 Annual Report.
For its part, the Q1 2022 Report stated that Lottery’s management had “evaluated the
effectiveness of [the company’s] disclosure controls and procedures.” Class Compl. ¶ 97.
Based on this evaluation, DiMatteo and Dickinson had concluded that, as of March 31, 2022,
Lottery’s “disclosure controls and procedures were not effective due to the material weakness
in [Lottery’s] internal control over financial reporting with respect to [Lottery’s] financial
statement close and reporting process.” Id. (emphasis omitted). Nevertheless, the Q1 2022
53

Report asserted, Lottery’s “management concluded that [Lottery’s] condensed consolidated
financial statements included in [the Q1 2022] Report fairly present, in all material respects,
[Lottery’s] financial position, results of operations and cash flows as of the dates and for the
periods presented in conformity with GAAP.” Id. (emphasis omitted). The Q1 2022 Report
did not mention that the purported $30 million in sales of LotteryLink Credits never
happened, or that a subsidiary had entered a line of credit. See generally Q1 2022 Report.
Defendants argue that “the Proxy disclosed these very issues,” and that Lottery “ha[d]
no duty to re-disclose what it ha[d] already disclosed once.” Lottery Class Br. at 22. To be
sure, “there is no duty to disclose information to one who reasonably should already be aware
of it,” or to disclose information “where information is equally available to both parties.”
Seibert v. Sperry Rand Corp., 586 F.2d 949, 952 (2d Cir. 1978) (citation omitted). But that is
hardly the situation here. The Proxy stated only that the “[f]ailure to maintain adequate
financial, information technology and management processes and controls has resulted in and
could result in material weaknesses which could lead to errors in our financial reporting.”
Proxy at 42 (emphasis added). This warning, by itself, did not ensure that reasonable
investors would “already be aware” that Lottery would fabricate a $30 million sale or that it
would not report a subsidiary’s opening of a line of credit. Seibert, 586 F.2d at 952 (citation
omitted).
To be clear, as the Court held above, the warning in the Proxy sufficed, for purposes of
the bespeaks-caution doctrine, as cautionary language regarding Lottery’s general issues with
its internal controls at the time of the de-SPAC transaction. That same language, however,
did not sufficiently warn shareholders that (as Plaintiffs allege) Lottery would thereafter feign
a $30 million sale of LotteryLink Credits, or that a subsidiary would covertly enter a line of
credit. It may be true that “when defendants warn investors of a potential risk, they need not
54

predict the precise manner in which the risks will manifest themselves.” Wilbush v. Ambac
Fin. Grp., Inc., 271 F. Supp. 3d 473, 493 (S.D.N.Y. 2017) (citation omitted; emphasis added).
But “cautionary words about future risk cannot insulate from liability the failure to disclose
that the risk has transpired.” Wilson v. Merrill Lynch & Co., 671 F.3d 120, 130 (2d Cir.
2011) (brackets and citation omitted; emphasis added); accord Meyer, 761 F.3d at 250 (“A
duty to disclose arises whenever secret information renders prior public statements materially
misleading.” (citation omitted)); Slayton, 604 F.3d at 770 n.5 (“In applying the judiciallycreated bespeaks caution doctrine, on which the cautionary language prong of the PSLRA is
based in part, we have held that cautionary language that is misleading in light of historical
fact cannot be meaningful.” (citation omitted)); In re Int’l Bus. Machs. Corp. Sec. Litig., 163
F.3d 102, 110 (2d Cir. 1998) (“A duty to update may exist when a statement, reasonable at the
time it is made, becomes misleading because of a subsequent event.”).
By the time Lottery released the Q3 2021 Report, the 2021 Annual Report, and the Q1
2022 Report, the sham sale of LotteryLink Credits had already been announced (or, for the Q3
2021 Report at least, had already been planned and was announced the same day). Likewise,
by the time that Lottery released the latter two reports, the undisclosed opening of the line of
credit had already happened. Therefore, with respect to each of the three reports in question,
the Proxy “cannot insulate [Defendants] from liability [for] the failure to disclose that” these
events had taken place. Wilson, 671 F.3d at 130 (citation omitted).
ii.

The SOX Certifications

During the Class Period, DiMatteo and Dickinson made the certifications required by
SOX for Lottery’s quarterly and annual reports. Class Compl. ¶¶ 99-100. Both executives
certified that, “[b]ased on [their] knowledge,” Lottery’s quarterly and annual reports did not
contain material misstatements or omissions, and that the financial information included in
55

those reports “fairly present[ed] in all material respects the financial condition, results of
operations and cash flows of [Lottery].” Id. ¶ 99. DiMatteo and Dickinson also attested that
they had disclosed to Lottery’s auditors and audit committee, “based on [their] most recent
evaluation of internal control over financial report,” “[a]ll significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting,” as well as
“any fraud . . . involv[ing] management or other employees who have a significant role in
[Lottery’s] internal control over financial reporting.” Id.
Each of the challenged statements in the SOX certifications is a statement of opinion.
DiMatteo and Dickinson’s certifications that the reports contained no material misstatements
or omissions, and that the financial information in those reports was accurate, “signal that they
are opinions by stating that they are ‘based on [the] knowledge’ of the officer.” DeCarlo, 80
F.4th at 176 (brackets in original). Similarly, their certifications regarding disclosures
“contain language that conveys management’s subjective judgments about the company’s
internal controls and thus constitute statements of opinion.” Id.
Here, as in DeCarlo, the SOX certifications are “non-actionable.” Id. Plaintiffs “point
to allegations that [Lottery] later reversed course and that its restatement acknowledged a
failure of internal controls,” and they “insist that the reversal compels the inference that the
SOX certifications were not believed when made.” Id. But Plaintiffs have “fail[ed] to
adequately allege that [DiMatteo and Dickinson] did not believe what they certified.” Id.
Lottery’s “change of opinion, standing alone, does not mean that the original certified
opinions were disingenuous.” Id.
It is true that a statement of opinion may be actionable if it “contains an embedded
statement of fact that is not true,” or if it “omits material facts about the [defendant’s] inquiry
into or knowledge concerning a statement of opinion” that “conflict with what a reasonable
56

investor would take from the statement of opinion itself.” Id. at 171 (original brackets and
citation omitted). But Plaintiffs have not argued that the SOX certifications contained
embedded untrue statements of fact, so they have forfeited such an argument for purposes of
the present motions to dismiss. See id. at 176 n.13 (similarly deeming the plaintiffs to have
inadequately presented the argument that “the SOX certifications contained embedded
statements of fact”). Plaintiffs have likewise not contended – and have thus forfeited the
argument – that the SOX certifications “omit[ted] material facts about the [defendant’s]
inquiry into or knowledge concerning a statement of opinion” that “conflict with what a
reasonable investor would take from the statement itself.” Omnicare, 575 U.S. at 189.
The Court therefore concludes that, as presently pleaded, the SOX certifications “were
non-actionable statements of opinion.” DeCarlo, 80 F.4th at 176.
iii.

The 2021 Annual Report’s Discussion of Regulatory
Compliance

The 2021 Annual Report stated that Lottery “rel[ied] on technology services to closely
monitor and track amendments, additions, and impositions of regulations in all jurisdictions
regarding the authorization of lottery and work to maintain effective relationships with
applicable legislative and regulatory authorities.” Class Compl. ¶ 62. The 2021 Annual
Report added that Lottery “use[d] this information” to “create strong working relationships
with the regulatory authorities” and to “ensure transparent regulatory compliance.” Id. These
statements were non-actionable puffery. Like the pre-merger statements addressed above, the
statements in the 2021 Annual Report were “too general to cause a reasonable investor to rely
upon them,” City of Pontiac, 752 F.3d at 183 (citation omitted), and “lack[ed] the sort of

57

definite positive projections that might require later correction,” In re Vivendi, 838 F.3d at 245
(citation omitted). 8
Also in the 2021 Annual Report, Lottery stated that – although it could not “ensure
that [its] activities . . . w[ould] not become the subject of regulatory or law enforcement
proceedings” – Lottery “believe[d] that [it was] in compliance with all material domestic and
international laws and regulatory requirements applicable to [its] business.” 2021 Annual
Report at 43; see Class Compl. ¶ 62. This was a statement of opinion. See In re Philip
Morris, 89 F.4th at 418 (“language like ‘we believe’” suffices “to render a statement one of
opinion”). The question is therefore whether it was an actionable statement of opinion.
Omnicare discussed a similar sentence as an example of “an unadorned statement of
opinion about legal compliance: ‘We believe our compliance is lawful.’” 575 U.S. at 188.
The Supreme Court explained that “[i]f the [speaker] makes that statement without having
consulted a lawyer, it could be misleadingly incomplete. In the context of the securities
market, an investor, though recognizing that legal opinions can prove wrong in the end, still
likely expects such an assertion to rest on some meaningful legal inquiry – rather than, say, on
mere intuition, however sincere.” Id. Further, a reasonable investor “expects not just that the

8

In a footnote, Plaintiffs state: “A company’s statements regarding its legal compliance are
actionable by way of omission where the company (i) ‘fails to disclose that a material source
of its success is the use of improper or illegal business practices’ or (ii) ‘when [it] makes a
statement that can be understood, by a reasonable investor, to deny that the illegal conduct is
occurring.’” Lottery Class Opp. at 11 n.5 (brackets in original) (quoting Menaldi v. Och-Ziff
Cap. Mgmt. Grp. LLC, 164 F. Supp. 3d 568, 581-82 (S.D.N.Y. 2016)). Plaintiffs then assert,
without elaboration, that Lottery’s statements about compliance with regulators “fit both
prongs.” Id. Plaintiffs have forfeited this argument through inadequate briefing. See
Revitalizing Auto Cmtys. Env’t Response Tr. v. Nat’l Grid USA, 10 F.4th 87, 100 n.9 (2d Cir.
2021) (“We ordinarily deem an argument to be forfeited where it has not been sufficiently
argued in the briefs, such as when it is only addressed in a footnote.” (quotation marks and
citation omitted)); Grytsyk v. Morales, 527 F. Supp. 3d 639, 651 (S.D.N.Y. 2021) (“A single,
conclusory, one-sentence argument is insufficient to raise an issue in the first instance.”
(brackets, quotation marks, and citation omitted)).
58

[speaker] believes the opinion . . . , but that it fairly aligns with the information in the
[speaker’s] possession at the time.” Id. at 188-89. Therefore, a speaker may be liable if a
statement “omits material facts about the [speaker’s] inquiry into or knowledge concerning a
statement of opinion, and if those facts conflict with what a reasonable investor would take
from the statement itself.” Id. at 189.
But Plaintiffs do not allege enough facts to support the inference that, when Lottery
stated in the 2021 Annual Report that it believed it was complying with applicable laws,
Lottery did not actually believe that fact, see id. at 184, or that Lottery made this statement
without undertaking “some meaningful legal inquiry,” id. at 188. Nor do Plaintiffs assert
sufficient allegations (let alone make a developed argument) that Lottery “omit[ted] material
facts about [its] inquiry into or knowledge concerning [that] statement of opinion,” or that
“those facts [would] conflict with what a reasonable investor would take from the statement
itself.” Id. at 189.
Plaintiffs stress that in the 7/6/22 Form 8-K, “Lottery disclosed that an internal
investigation had uncovered ‘instances of non-compliance with state and federal laws
concerning the state in which tickets are procured as well as order fulfillment.’” Class Compl.
¶ 63 (emphasis omitted). But “[g]enerally speaking, disclosure is not a rite of confession, so
companies do not have a duty to disclose uncharged, unadjudicated wrongdoing.” Plumbers
II, 11 F.4th at 98 (quotation marks and citation omitted). And, by itself, the fact that
“instances of non-compliance with state and federal laws” were later uncovered, Class Compl.
¶ 63 (emphasis omitted), does not automatically make a prior statement of belief regarding
legal compliance actionable under Omnicare. Altogether, Plaintiffs have failed to establish
that the 2021 Annual Report’s statement of belief regarding legal compliance was actionable.

59

B. Scienter
Having addressed falsity, the Court next moves to scienter. The Court assesses only
the scienter of the non-dismissed Defendants, and it does so only as to the statements that (as
explained above) contain potentially actionable misstatements or omissions.
Scienter is “the defendant’s intention to deceive, manipulate, or defraud.” Tellabs,
551 U.S. at 313 (quotation marks and citation omitted). The PSLRA requires a private
securities-fraud complaint to “state with particularity facts giving rise to a strong inference
that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). “To do so,
a complaint must allege facts showing (1) that defendants had the motive and opportunity to
commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or
recklessness.” APERS, 28 F.4th at 355 (quotation marks and citation omitted).
The proper inquiry is “whether all of the facts alleged, taken collectively, give rise to a
strong inference of scienter, not whether any individual allegation, scrutinized in isolation,
meets that standard.” Tellabs, 551 U.S. at 323. A “court must consider plausible,
nonculpable explanations for the defendant’s conduct, as well as inferences favoring the
plaintiff.” Id. at 324. “The inference that the defendant acted with scienter need not be
irrefutable, i.e., of the smoking-gun genre, or even the most plausible of competing
inferences.” Id. (quotation marks and citation omitted). “Yet the inference of scienter must
be more than merely ‘reasonable’ or ‘permissible’ – it must be cogent and compelling, thus
strong in light of other explanations.” Id. A complaint will survive a motion to dismiss “only
if a reasonable person would deem the inference of scienter cogent and at least as compelling
as any opposing inference one could draw from the facts alleged.” Id.
When a corporation is a defendant, a plaintiff must plead “facts that give rise to a
strong inference that someone whose intent could be imputed to the corporation acted with the
60

requisite scienter.” Jackson v. Abernathy, 960 F.3d 94, 98 (2d Cir. 2020) (per curiam)
(quotation marks and citation omitted). Ordinarily, “courts look to the discrete roles played
by the corporate actors who are connected to the alleged misrepresentation to determine which
(if any) fall within the locus of a company’s scienter.” Id. “Under this approach, the most
straightforward way to raise a strong inference of corporate scienter is to impute it from an
individual defendant who made the challenged misstatement.” Id. (quotation marks and
citation omitted). “The scienter of the other officers or directors who were involved in the
dissemination of the fraud may also be imputed to the corporation, even if they themselves
were not the actual speaker.” Id.
1. Motive and Opportunity
In the securities-fraud context, opportunity can be “shown by alleging the means used
and the likely prospect of achieving concrete benefits by the means alleged.” Emps.’ Ret. Sys.
of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297, 309 (2d Cir. 2015) (citation omitted).
“The opportunity to commit fraud is generally assumed where the defendant is a corporation
or corporate officer.” In re MF Glob. Holdings, 982 F. Supp. 2d at 306. No Defendant denies
(for purposes of these motions, at least) that it had the opportunity to commit fraud.
Defendants’ argument, instead, is that Plaintiffs have not adequately alleged that any
Defendant had sufficient motive to commit fraud. The Court agrees with Defendants.
“[T]o raise a strong inference of scienter through motive and opportunity to defraud,
Plaintiffs must allege that [Defendants] benefitted in some concrete and personal way from
the purported fraud.” ECA, 553 F.3d at 198 (quotation marks and citation omitted). “Motives
that are common to most corporate officers, such as the desire for the corporation to appear
profitable and the desire to keep stock prices high to increase officer compensation, do not
constitute ‘motive’ for purposes of this inquiry.” Id.
61

To support their argument that Defendants had sufficient motive to commit fraud,
Plaintiffs assert that “Defendants stood to personally gain if the business combination were
consummated.” Lottery Class Opp. at 15-16. For example, “Dickinson was awarded $35
million in restricted stock, which was contingent on the business combination occurring and
[Trident] acquiring Lottery.” DCD Opp. at 7. Likewise, “Lever was awarded $7 million in
restricted stock, which was contingent on the completion of the [b]usiness [c]ombination. The
stock grant dwarfed her non-contingent salary of $318,750 (which increased more than 63%
in expectation of the merger).” Lever Opp. at 10 (footnote omitted). Meanwhile, “DiMatteo
and Clemenson, who both owned about 14% of Lottery at the time of the merger, each sold
375,000 shares shortly after the business combination was completed.” DCD Opp. at 7. 9 If
the merger had not taken place, Plaintiffs argue, these executives “would not have been able
to divest themselves of such a substantial number of shares in a liquid market.” Id. at 8.
Plaintiffs thus conclude that DiMatteo, Clemenson, Dickinson, and Lever “were motivated to

9

Plaintiffs do not plead these precise figures, although they do allege that DiMatteo,
Clemenson, Dickinson, and Lever “received far more shares than they would have been
entitled to had the true value of Lottery been disclosed in connection with the [b]usiness
[c]ombination”; that they “received lucrative pay and benefit packages to the extent they
remained employees of Lottery following the [b]usiness [c]ombination”; and that they “stood
to receive millions more shares as ‘earnout’ awards and compensation in the event the
[b]usiness [c]ombination was completed, and certain share price targets were achieved.”
Class Compl. ¶ 140. To support the specific numbers in their brief, Plaintiffs cite public
filings by Lottery. See DCD Opp. at 3 & n.3, 4 & n.5, 7 & n.9; Lever Opp. at 10 & n.17.
Plaintiffs argue that these figures are subject to judicial notice because “documents that are
necessary to plaintiffs’ allegations[,] even if not explicitly referenced in the complaint[,] are
likewise suitable for judicial notice.” DCD Opp. at 3 n.3 (original brackets, emphasis,
quotation marks, and citation omitted). Defendants object that this “reli[ance] on new facts
for which Plaintiffs seek judicial notice rather than any fact alleged in the Complaint” is “an
improper means to attempt to correct their pleading deficiencies.” C&D Reply at 2.
For purposes of the present motions, the Court assumes that (as Plaintiffs argue) the Court
may, through judicial notice, consider non-pleaded facts to support an inference of scienter.
The Court’s ultimate decision on the instant motions to dismiss would be the same regardless
of how it resolved this particular issue.
62

deceive investors as to the true state of Lottery’s affairs, because they stood to benefit
personally from the consummation of the business transaction.” Id.
This argument is not compelling. “[T]he existence, without more, of executive
compensation dependent upon stock value does not give rise to a strong inference of scienter.”
Acito v. IMCERA Grp., Inc., 47 F.3d 47, 54 (2d Cir. 1995). 10 In Acito, the Second Circuit
rejected the plaintiffs’ allegation that “defendants were motivated to defraud the public
because an inflated stock price would increase their compensation.” Id. “If scienter could be
pleaded on that basis alone, virtually every company in the United States that experiences a
downturn in stock price could be forced to defend securities fraud actions. Incentive
compensation can hardly be the basis on which an allegation of fraud is predicated.” Id.
(brackets, quotation marks, and citation omitted). The Second Circuit has reaffirmed this
proposition many times. See, e.g., S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98,
109 (2d Cir. 2009) (collecting cases); ECA, 553 F.3d at 201; Kalnit v. Eichler, 264 F.3d 131,
139-40 (2d Cir. 2001); Rothman v. Gregor, 220 F.3d 81, 93 (2d Cir. 2000). Courts in this
Circuit have routinely applied this principle in the context of public offerings where
defendants would benefit from a higher share price. See, e.g., Teamsters Loc. 445 Freight
Div. Pension Fund v. Dynex Cap. Inc., 531 F.3d 190, 192-93, 196-97 (2d Cir. 2008);
Rombach v. Chang, 355 F.3d 164, 167-68, 177 (2d Cir. 2004); In re Plug Power, Inc. Sec.
Litig., No. 21-cv-02004 (ER), 2022 WL 4631892, at *12 (S.D.N.Y. Sept. 29, 2022); Haw.

10

The Second Circuit decided Acito before Congress enacted the PSLRA. Compare 47 F.3d
47 (decided February 1, 1995), with 109 Stat. 737 (enacted December 22, 1995). As the
Second Circuit has explained, however, “the enactment of [the PSLRA] did not change the
basic pleading standard for scienter in this circuit.” Novak, 216 F.3d at 310; see id. at 311
(“[W]e believe that the enactment of paragraph (b)(2) did not change the basic pleading
standard for scienter in this circuit (except by the addition of the words ‘with particularity’).
Accordingly, we hold that the PSLRA adopted our ‘strong inference’ standard.”).
63

Structural Ironworkers Pension Tr. Fund v. AMC Ent. Holdings, Inc., 422 F. Supp. 3d 821,
848-49 (S.D.N.Y. 2019); Salinger v. Projectavision, Inc., 972 F. Supp. 222, 234 (S.D.N.Y.
1997).
Plaintiffs nonetheless insist that “the desire to artificially inflate a company’s stock
price in advance of a public offering establishes a cognizable motive.” Lottery Class Opp. at
15 (citing In re Silvercorp Metals, Inc. Sec. Litig., 26 F. Supp. 3d 266, 276 (S.D.N.Y. 2014);
Van Dongen v. CNinsure Inc., 951 F. Supp. 2d 457, 474 (S.D.N.Y. 2013); City of Roseville
Emps.’ Ret. Sys. v. EnergySolutions, Inc., 814 F. Supp. 2d 395, 420-21 (S.D.N.Y. 2011)). The
cases noted in the previous paragraph foreclose this contention. Moreover, none of the cases
cited by Plaintiffs held that, by itself, the desire to artificially inflate a company’s stock price
in advance of a public offering is sufficient to establish motive.
In In re Silvercorp, “the plaintiffs d[id] not plead merely motive” based on
maximizing stock value ahead of an offering. 26 F. Supp. 3d at 275. Rather, the complaint
“contain[ed] extensive allegations of circumstantial evidence of recklessness and misconduct
that strongly buttress[ed] the motive alleged, and turn[ed] what might [have] be[en] a weak
inference standing alone into a strong one.” Id. The court’s subsequent suggestion that “[t]he
motive alleged may have been strong enough to survive dismissal on its own” plainly was
dictum. Id. at 276.
Meanwhile, Van Dongen and City of Roseville both involved instances of “unusual”
(that is, suspicious) stock sales. See Van Dongen, 951 F. Supp. 2d at 475 (“Ultimately,
resolving doubts and drawing all reasonable inferences in favor of the plaintiff, the Court is
persuaded that these sales qualify as unusual.”); City of Roseville, 814 F. Supp. 2d at 421
(“Contrary to the defendants’ view, such sales could clearly be characterized as unusual
insider trading activity during the class period which may permit an inference of scienter.”
64

(ellipsis, quotation marks, and citation omitted)). It is true that “‘[u]nusual’ insider sales at
the time of the alleged withholding of negative corporate news may permit an inference of bad
faith and scienter.” In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 74 (2d Cir. 2001). But
Plaintiffs fail to establish that any Defendants made unusual sales. At most, Plaintiffs assert
that DiMatteo and Clemenson “each sold 375,000 shares shortly after the business
combination was completed.” DCD Opp. at 7. Yet Plaintiffs provide no further details about
the sales, nor do they explain how these sales were sufficiently unusual to support a finding of
motive as to DiMatteo and Clemenson (let alone as to Lottery, Dickinson, and Lever). See,
e.g., APERS, 28 F.4th at 355 (“The Investors allege only one improper motive: the individual
defendants’ motive to keep the price of stock high while selling their own shares at a profit. It
is alleged that four of the six individual defendants engaged in stock sales during the putative
class period; but the Investors fail to allege unusual stock trades as necessary to raise an
inference of bad faith or scienter.” (quotation marks and citations omitted)).
The Court does not ignore Plaintiffs’ allegations that SPACs are uniquely fraudenabling. See, e.g., Class Compl. ¶ 44 (“Amidst a recent boom in SPAC transactions,
regulators – namely the SEC – have warned the public about serious, widespread concerns
characteristic of these mergers, including ‘risks from fees, conflicts, and sponsor
compensation, . . . and the potential for retail participation drawn by baseless hype.’ These
concerns raise questions as to whether SPAC sponsors have ‘sufficient incentives to do
appropriate due diligence on the target and its disclosures to public investors, especially since
SPACs are designed not to include a conventional underwriter.’” (ellipsis in original; footnote
omitted; quoting 2021 statement by then-acting director of the SEC’s Division of Corporation
Finance)); id. ¶ 45 (quoting a prior draft of Klausner et al., supra, for the proposition that there
are “‘misaligned incentives inherent in the SPAC structure,’ including that ‘the sponsor has an
65

incentive to enter into a losing deal for SPAC investors if its alternative is to liquidate’”). But
the Court is unprepared to hold here that SPACs are an exception to the general principle that
the prospect of a public offering, standing alone, is insufficient to establish motive.
Even if the Court assumed that the general principle applies less (or even not at all) to
SPACs, that would not save Plaintiffs’ complaints. If the alleged motive to commit fraud
arose out of Defendants’ desire to ensure that the de-SPAC transaction happened, that motive
dissipated once the de-SPAC transaction was complete. Plaintiffs have given the Court no
reason to conclude that this motive would inspire post-merger misstatements or omissions.
And, for the reasons explained above, Plaintiffs have failed to identify actionable statements
or omissions from the pre-merger period. Even if SPAC-specific incentives could uniquely
support a share-price-based theory of motive, they cannot do so in this case.
In sum, the Court holds that Plaintiffs have failed to establish the requisite scienter as
to any Defendant under a motive-and-opportunity theory.
2. Conscious Misbehavior or Recklessness
“If no motive or opportunity (other than a generalized business motive) is shown, the
circumstantial evidence of conscious misbehavior must be correspondingly greater and show
highly unreasonable behavior or that which evinces an extreme departure from the standards
of ordinary care.” APERS, 28 F.4th at 355 (quotation marks and citation omitted).
“Circumstantial evidence can support an inference of scienter in a variety of ways, including
where defendants (1) benefitted in a concrete and personal way from the purported fraud;
(2) engaged in deliberately illegal behavior; (3) knew facts or had access to information
suggesting that their public statements were not accurate; or (4) failed to check information
they had a duty to monitor.” Blanford, 794 F.3d at 306 (quotation marks and citation
omitted).
66

At the outset, Plaintiffs suggest that the July 2022 disclosures of errors in Lottery’s
prior financial statements, by themselves, “support a strong inference of scienter.” Lottery
Class Opp. at 16. But “plaintiffs may not plead fraud by hindsight.” Slayton, 604 F.3d at 776.
“Corporate officials need not be clairvoyant; they are only responsible for revealing those
material facts reasonably available to them.” Novak, 216 F.3d at 309. “Thus, allegations that
defendants should have anticipated future events and made certain disclosures earlier than
they actually did do not suffice” to establish scienter under a recklessness theory. Id.; accord
Fort Worth Emps.’ Ret. Fund v. Biovail Corp., 615 F. Supp. 2d 218, 226 (S.D.N.Y. 2009)
(“The mere allegation that Defendants failed to disclose a risk does not in and of itself
constitute strong evidence that they did so with scienter.”).
Plaintiffs offer five reasons why, in their view, the Court should infer that Defendants
were aware that their statements were inaccurate: (1) “a corporate officer’s access to contrary
information can be inferred where it is facially implausible that he or she would not have been
privy to the information or transactions at issue”; (2) “courts recognize that obvious
accounting manipulations, such as improper revenue recognition, are especially indicative of
conscious misbehavior since such violations do not commonly occur inadvertently, but
instead suggest a conscious decision to improperly recognize revenue”; (3) “the magnitude of
[the alleged] fraud supports an inference of scienter; (4) “a strong inference of scienter is
further supported by the core operations doctrine”; and (5) “the timing and circumstances of
the terminations/resignations and the withdrawal of Lottery’s independent auditor also support
a strong inference of scienter.” Lottery Class Opp. at 17-19 (quotation marks and citations
omitted); see also DCD Opp. at 8-11 (making substantially the same arguments); Lever Opp.
at 11-12 (same).

67

The first four reasons are variations on a theme: Plaintiffs urge that Defendants simply
must have known that their statements were false or misleading given the magnitude of the
restatement of revenue of a core operation of the company (namely, online lottery games) and
Defendants’ respective roles at the company. See, e.g., Lottery Class Opp. at 17 (“[I]t simply
beggars belief that the Lottery Defendants were unaware that Lottery’s purported Q3 2021
sale of $30 million of marketing credits was either an outright sham or not consummated,
when the ostensible proceeds of that sale comprised half of Lottery’s total reported cash
balance and nearly half of Lottery’s total revenues for fiscal year 2021.”); id. at 19 (“[W]hen a
plaintiff has adequately alleged that the defendant made false or misleading statements the
fact that [allegedly false or misleading] statements concerned the core operations of the
company supports the inference that [the] defendant knew or should have known the
statements were false when made.” (citation omitted)). But such allegations are not enough.
Alleging that Defendants had leadership roles at Lottery and that the actionable
statements or omissions concerned Lottery’s core operations is insufficient to establish
scienter. The seminal Second Circuit decision concerning the core-operations doctrine
“preceded the PSLRA by six years.” In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326,
353 (S.D.N.Y. 2011). “The Second Circuit has not decided whether the core operations
doctrine remains valid as a theory of scienter following [the enactment of] the PSLRA.” In re
Skechers USA, Inc. Sec. Litig., 444 F. Supp. 3d 498, 528 (S.D.N.Y. 2020) (quotation marks
omitted). In this District, “the majority rule is to consider the core operations allegations to
constitute supplementary, but not an independent, means to plead scienter.” Id. (quotation
marks and citation omitted). “In other words, the core operations doctrine can only be a buoy,
not a life raft.” In re Diebold Nixdorf, Inc., Sec. Litig., No. 19-cv-06180 (LAP), 2021 WL
1226627, at *15 (S.D.N.Y. Mar. 30, 2021); see, e.g., In re Skechers, 444 F. Supp. 3d at 507,
68

528 (scienter insufficiently alleged when plaintiffs relied solely on the CEO, COO, and CFO’s
“high-level positions within the [c]ompany” and the fact that “the underlying subject of the
alleged fraud . . . [wa]s so fundamental to the [c]ompany’s operations that the [CEO, COO,
and CFO’s] knowledge about it should virtually b[e] presumed”); In re AT&T/DirecTV Now
Sec. Litig., 480 F. Supp. 3d 507, 533 (S.D.N.Y. 2020) (“[C]ourts in this circuit have generally
invoked the doctrine only to bolster other evidence of scienter, rather than relying on it as an
independently sufficient basis. Here, because the Amended Complaint does not contain other
allegations of scienter, plaintiffs’ core operations theory fails as well.” (citation omitted)),
aff’d sub nom. Steamfitters Loc. 449 Pension Plan v. AT&T Inc., No. 21-2698, 2022 WL
17587853 (2d Cir. Dec. 13, 2022) (summary order); Lipow v. Net1 UEPS Techs., Inc., 131 F.
Supp. 3d 144, 163 (S.D.N.Y. 2015) (“[T]o establish an inference of scienter, Plaintiff must do
more than allege that the Individual Defendants had or should have had knowledge of certain
facts contrary to their public statements simply by virtue of their high-level positions. Courts
in this Circuit have long held that accusations founded on nothing more than a defendant’s
corporate position are entitled to no weight.” (citations omitted)); Bd. of Trs. of City of Ft.
Lauderdale Gen. Emps.’ Ret. Sys. v. Mechel OAO, 811 F. Supp. 2d 853, 872 (S.D.N.Y. 2011)
(“[W]hile the Court considers circumstantial allegations pertaining to the Individual
Defendants’ knowledge of Mechel’s key products as part of its holistic assessment of the
scienter allegations, in the absence of Second Circuit guidance, the Court does not find them
to be independently sufficient to raise a strong inference of scienter.” (citation omitted)), aff’d
sub nom. Frederick v. Mechel OAO, 475 F. App’x 353 (2d Cir. 2012) (summary order). 11

11

At one point, Plaintiffs argue that “it is possible to raise the required inference with regard
to a corporate defendant without doing so with regard to a specific individual defendant.” Lea
v. TAL Educ. Grp., 837 F. App’x 20, 27 (2d Cir. 2020) (summary order) (quotation marks and
citation omitted); see Lottery Class Opp. at 20 (quoting this sentence in Lea). This notion,
69

The magnitude of a restatement of revenue “can, with other factual allegations,
‘constitute sufficient pleadings as to recklessness.’” Glaser v. The9, Ltd., 772 F. Supp. 2d
573, 596 (S.D.N.Y. 2011) (brackets omitted) (quoting Rothman, 220 F.3d at 92); accord Okla.
Firefighters Pension & Ret. Sys. v. Lexmark Int’l, Inc., 367 F. Supp. 3d 16, 38 (S.D.N.Y.
2019). Here, the ostensible proceeds of the sale of LotteryLink Credits comprised over 90
percent of the $32.25 million in revenue reported during the third quarter of 2021, see
11/15/21 Form 8-K/A at 13, and “constituted almost half of the entire [c]ompany’s revenue
and cash for the 2021 fiscal year,” Class Compl. ¶ 108.
Yet while the magnitude of a financial restatement is “certainly a relevant factor, it is
well established that the size of the fraud alone does not create an inference of scienter.” In re
Wachovia, 753 F. Supp. 2d at 366 (citation omitted); accord Fed. Hous. Fin. Agency v.
JPMorgan Chase & Co., 902 F. Supp. 2d 476, 493 (S.D.N.Y. 2012); In re BISYS Sec. Litig.,
397 F. Supp. 2d 430, 447 (S.D.N.Y. 2005). “The magnitude of a restatement, in other words,

labeled “collective corporate scienter” by the Second Circuit, Jackson, 960 F.3d at 99,
originated in a hypothetical scenario discussed in the Seventh Circuit’s decision on remand
from Tellabs, see Dynex, 531 F.3d at 195-96 (quoting Makor Issues & Rts., Ltd. v. Tellabs
Inc., 513 F.3d 702, 710 (7th Cir. 2008)). It is not obvious what the relationship is between
this principle and the core-operations doctrine. Nonetheless, the Second Circuit has cautioned
that “collective corporate scienter may be inferred” only in “exceedingly rare instances.”
Jackson, 960 F.3d at 99. Plaintiffs have not persuaded the Court that, as presently pleaded,
these circumstances qualify, such that the Court should infer Lottery’s scienter under a
collective-corporate-scienter theory.
Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Securities, LLC, 797 F.3d 160 (2d Cir.
2015), cited by Plaintiffs, see Lottery Class Opp. at 20, is distinguishable. The claim at issue
in Loreley was New York common-law fraud, and therefore the PSLRA did not apply. See
797 F.3d at 170. Moreover, the facts alleged in support of collective corporate scienter were
more copious (including quotes taken from internal emails) than those alleged here. See id. at
177-78. For comparison, in In re DraftKings Inc. Securities Litigation, 650 F. Supp. 3d 120,
177-78 (S.D.N.Y. 2023), the court rejected the plaintiffs’ attempt to “plead corporate scienter
by other means” where the complaint “d[id] not specifically identify the reports or statements
containing this information that were accessible to individual defendants” (quotation marks
and citation omitted).
70

must be presented in tandem with other circumstantial evidence to suggest scienter.” In re
Turquoise Hill Res. Ltd. Sec. Litig., No. 13-cv-08846 (LGS), 2014 WL 7176187, at *7
(S.D.N.Y. Dec. 16, 2014). “[W]hat is noticeably missing from the [Amended Class-Action
Complaint and the Hoffman Complaint] is any allegation that [Defendants] had any
contemporaneous basis to believe that the information they related was incorrect that would
be sufficient to allege the requisite ‘conscious recklessness.’” Dobina v. Weatherford Int’l
Ltd., 909 F. Supp. 2d 228, 251 (S.D.N.Y. 2012) (quoting S. Cherry St., 909 F.3d at 109); see
Dynex, 531 F.3d at 196 (generally, “where plaintiffs contend defendants had access to
contrary facts, they must specifically identify the reports or statements containing this
information” (brackets and citation omitted)). The core-operations doctrine cannot “bridge
the gap in this regard.” Dobina, 909 F. Supp. 2d at 251.
The magnitude of a restatement and the centrality of a revenue category to a
company’s core operations are insufficient even when combined with “the timing and
circumstances of the terminations/resignations and the withdrawal of [an] independent
auditor.” Lottery Class Opp. at 19. “[T]he timing and circumstances of resignations . . . can
add to a pleading of circumstantial evidence of fraud.” Yannes v. SCWorx Corp., No. 20-cv03349 (JGK), 2021 WL 2555437, at *6 (S.D.N.Y. June 21, 2021); accord Vanderhoof v.
China Auto Logistics, Inc., No. 18-cv-10174, 2021 WL 3260849, at *5 (D.N.J. July 30, 2021)
(“executive and auditor resignations,” when combined with sufficient additional allegations,
may give rise to an inference of scienter). But “[o]fficials resign from public companies for
many innocuous reasons. These include that better opportunities were available or that
personal considerations favored change. It is also axiomatic that nascent companies with
uncertain futures are especially prone to turnover.” Gregory v. ProNAi Therapeutics Inc., 297
F. Supp. 3d 372, 415 (S.D.N.Y.), aff’d, 757 F. App’x 35 (2d Cir. 2018) (summary order).
71

Moreover, “[w]hen corporate misconduct is disclosed, members of management resign [or are
terminated] for all sorts of reasons, including that they were negligent in overseeing the
responsible employees or simply because the optics of changing management are better for
investors and regulators.” Schiro v. Cemex, S.A.B. de C.V., 396 F. Supp. 3d 283, 303
(S.D.N.Y. 2019).
“Section 10(b), however, requires more than mere negligence: it requires
recklessness.” Id. at 304; see Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 479 (1977)
(“Congress by § 10(b) did not seek to regulate transactions which constitute no more than
internal corporate mismanagement.” (citation omitted)); S. Cherry St., 573 F.3d at 109 (“By
reckless disregard for the truth, we mean conscious recklessness – i.e., a state of mind
approximating actual intent, and not merely a heightened form of negligence.” (further
emphasis, quotation marks, and citation omitted)). As presently pleaded, the terminations and
resignations “are at least as consistent with punishing those at the helm for their poor
judgment and leadership” as with their “relating to concocting a scheme to defraud
shareholders.” Lighthouse Fin. Grp. v. Royal Bank of Scot. Grp., PLC, 902 F. Supp. 2d 329,
343 (S.D.N.Y. 2012), aff’d sub nom. IBEW Loc. Union No. 58 Pension Tr. Fund & Annuity
Fund v. Royal Bank of Scot. Grp., PLC, 783 F.3d 383 (2d Cir. 2015); see, e.g., Malin v. XL
Cap. Ltd., 499 F. Supp. 2d 117, 162 (D. Conn. 2007) (“Plaintiffs have alleged and the [New
York Insurance Department] found various management problems, accounting deficiencies,
and lack of organization. In the absence of facts connecting [executives of the company] to
the alleged fraud, it is more likely that they were terminated and resigned as a result of
company mismanagement, not securities fraud.”), aff’d, 312 F. App’x 400 (2d Cir. 2009)
(summary order).

72

As Plaintiffs correctly note, it is improper “to compartmentalize each scienter element
in isolation.” Lottery Class Opp. at 20. The scienter analysis must rest “not on the presence
or absence of certain types of allegations, but on a practical judgment about whether,
accepting the whole factual picture painted by the [c]omplaint, it is at least as likely as not that
defendants acted with scienter.” Slayton, 604 F.3d at 775 (quotation marks and citation
omitted). The only reasons that Plaintiffs give for inferring Defendants’ scienter are the
magnitude of the restatement, the fact that the restatement concerned a core operation of the
company, and the departures of the company’s executives and auditor. These facts, taken
together, do not “give rise to a strong inference of scienter” as to any Defendant. Tellabs, 551
U.S. at 323; see, e.g., In re Aegean Marine Petroleum Network, Inc. Sec. Litig., 529 F. Supp.
3d 111, 162-72 (S.D.N.Y. 2021) (scienter not established under conscious-misbehavior-orrecklessness theory based on, among other facts, the magnitude of the alleged fraud,
executives’ sudden resignations, and the core-operations doctrine); Woolgar v. Kingstone
Cos., 477 F. Supp. 3d 193, 236-41 (S.D.N.Y. 2020) (same); In re Iconix Brand Grp., Inc., No.
15-cv-04860 (PGG), 2017 WL 4898228, at *17-19 (S.D.N.Y. Oct. 25, 2017) (same); Glaser,
772 F. Supp. 2d at 594-99 (same). If scienter could be pleaded based solely on such
allegations, virtually every company that issues a large restatement of revenue could be forced
to defend securities-fraud actions – a result that is hard to square with this Circuit’s
understanding of the law. Cf. Rombach, 355 F.3d at 176-77. As the complaints are currently
pleaded, “a reasonable person would deem the inference of scienter [less] compelling [than
the] opposing inference” that Defendants were negligent and committed acts of corporate
mismanagement, not securities fraud. Tellabs, 551 U.S. at 324. 12

12

In re Pareteum Securities Litigation, No. 19-cv-09767 (AKH), 2021 WL 3540779
(S.D.N.Y. Aug. 11, 2021), cited by Plaintiffs, see Lottery Class Opp. at 19, is distinguishable.
73

To summarize, Plaintiffs have plausibly alleged that various statements made after the
merger between Trident and Lottery were materially false or misleading. But Plaintiffs have
failed to plead sufficient facts to give rise to a strong inference of scienter for any Defendant
in relation to any of the potentially actionable post-merger statements. Therefore, Class Claim
I and Hoffman Claim I are dismissed. 13
III. Section 14(a) Claims
Section 14(a) of the Exchange Act “makes it unlawful to solicit proxies in
contravention of any rule or regulation promulgated by the SEC.” United Paperworkers Int’l
Union v. Int’l Paper Co., 985 F.2d 1190, 1198 (2d Cir. 1993). SEC Rule 14a-9 prohibits the
issuance of a proxy statement which is “false or misleading with respect to any material fact,

In that case, “the [c]ompany’s auditors advised Defendants that their internal controls over
financial reporting were inadequate and ineffective.” In re Pareteum, 2021 WL 3540779, at
*16 (quotation marks omitted). Plaintiffs do not identify a fact or circumstance of comparable
import here.
13

Because the Court holds that the Class Plaintiffs have not adequately alleged Lever’s
scienter, the Court declines to reach the question of whether – by signing the cover sheets for
the 11/15/21 Form 8-K, the 3/31/22 Form 8-K, and the 5/16/22 Form 8-K – Lever was a
“maker” of the actionable statements in those 8-Ks for purposes of Janus Capital Group, Inc.
v. First Derivative Traders, 564 U.S. 135 (2011); compare, e.g., In re Smith Barney Transfer
Agent Litig., 884 F. Supp. 2d 152, 163-64 (S.D.N.Y. 2012) (“[C]ourts consistently hold that
signatories of misleading documents ‘made’ the statements in those documents, and so face
liability under Rule 10b-5(b).”), with Xu v. Gridsum Holding Inc., 624 F. Supp. 3d 352, 363
(S.D.N.Y. 2022) (“That Zhang signed the Form 6-K – the cover page – attached to the press
release does not mean he is the ‘maker’ of the press release.”).
The Court also need not consider whether other facts about Lever’s possible role in
discovering the accounting errors – absent from the Amended Class-Action Complaint but
asserted by Lever in her brief, see Lever Br. at 5-6 – are cognizable on a motion to dismiss,
see Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018) (“Just because
the document itself is susceptible to judicial notice does not mean that every assertion of fact
within that document is judicially noticeable for its truth.”), or whether those facts would
further undermine an inference of scienter as to Lever, see Tr. at 42:18-23 (counsel for the
Class Plaintiffs admitting that the issue of Lever’s scienter “was a difficult question for us”
given that Lever “was part of the investigation to uncover some of these deficiencies”).
74

or which omits to state any material fact necessary in order to make the statements therein not
false or misleading.” 17 C.F.R. § 240.14a-9(a).
“To state a claim under Section 14(a) of the Securities Exchange Act of 1934, and
Rule 14a-9 promulgated thereunder, a shareholder must, at the very least, identify a materially
misleading misrepresentation or omission in the proxy materials.” St. Clair-Hibbard v. Am.
Fin. Tr., Inc., 812 F. App’x 36, 38 (2d Cir. 2020) (summary order). “Materiality for purposes
of Section 14(a) is indistinguishable from the Section 10(b) standard.” In re Mindbody, Inc.
Sec. Litig., 489 F. Supp. 3d 188, 217 (S.D.N.Y. 2020); see TSC Indus., 426 U.S. at 449
(announcing the materiality standard applicable to Section 14(a) and Rule 14a-9 claims);
Basic, 485 U.S. at 232 (“We now expressly adopt the TSC Industries standard of materiality
for the § 10(b) and Rule 10b-5 context.”).
For the reasons stated above regarding Plaintiffs’ pre-merger Proxy-related claims
under Section 10(b) and Rule 10b-5, the Court holds that the Proxy contains no material
misstatements or omissions under Section 14(a) and Rule 14a-9. See, e.g., ECA, 553 F.3d at
206 (“Because we have concluded that Plaintiffs failed to allege any misstatements or
omissions by [the defendant] that could be found to be material [for purposes of Section
10(b)], Plaintiffs’ claims under section 14(a) of the Exchange Act . . . must also fail.”).
Hence, Class Claim III is dismissed. The Court declines to decide the other issues raised by
the parties regarding the requirements of claims under Section 14(a) and Rule 14a-9.
IV.

Section 20(a) Claims
“Section 20(a) of the Exchange Act provides that individual executives, as ‘controlling

persons’ of a company, are secondarily liable for their company’s violations of the Exchange
Act.” Blanford, 794 F.3d at 305 (brackets and citation omitted). Thus, liability under Section
20(a) is “derivative of liability under some other provision of the Exchange Act.” Morrison v.
75

Nat’l Austl. Bank Ltd., 561 U.S. 247, 253 n.2 (2010). Because Plaintiffs’ claims under
Sections 10(b) and 14(a) fail, their claims under Section 20(a) – Class Claim II, Class Claim
IV, and Hoffman Claim II – necessarily fail as well. See, e.g., In re Philip Morris, 89 F.4th at
429; ECA, 553 F.3d at 207. The Court declines to decide the other issues raised by the parties
regarding the requirements of claims under Section 20(a).
V.

Leave to Amend
Plaintiffs request that, in the event of dismissal, the Court grant them leave to amend.

See Lottery Class Opp. at 25; Tr. at 59:3-9. 14 Defendants request that the Court dismiss the
Amended Class-Action Complaint and the Hoffman Complaint with prejudice. See, e.g.,
Lottery Class Br. at 25; Lottery Hoffman Br. at 20. The Court denies Defendants’ request.
Instead, the Court grants Plaintiffs leave to amend their complaints.
A court “should freely give leave” to amend a complaint “when justice so requires.”
Fed. R. Civ. P. 15(a)(2). “This permissive standard is consistent with [the Second Circuit’s]
strong preference for resolving disputes on the merits.” Williams, 659 F.3d at 212-13
(quotation marks and citation omitted). To be sure, “it is within the sound discretion of the
district court” to deny leave to amend “for good reason, including futility, bad faith, undue
delay, or undue prejudice to the opposing party.” Broidy Cap. Mgmt. LLC v. Benomar, 944
F.3d 436, 447 (2d Cir. 2019) (citation omitted). But “in the absence of a valid rationale like
undue delay or futility, it is improper to simultaneously dismiss a complaint with prejudice
under Rule 12(b)(6) and deny leave to amend when the district court has not adequately

14

Although Hoffman did not request leave to amend until oral argument, “the lack of a formal
motion is not sufficient ground for a district court’s dismissal [of the complaint] without leave
to amend, so long as the plaintiff has made its willingness to amend clear.” McLaughlin v.
Anderson, 962 F.2d 187, 195 (2d Cir. 1992).
76

informed the plaintiffs of its view of the complaint’s deficiencies.” Mandala v. NTT Data,
Inc., 88 F.4th 353, 363 (2d Cir. 2023).
The Court grants Plaintiffs leave to amend within twenty-one (21) days of the date of
this decision. Plaintiffs have not “repeated[ly] fail[ed] to cure deficiencies by amendments
previously allowed.” Foman v. Davis, 371 U.S. 178, 182 (1962). And the Court has no
reason to conclude that Plaintiffs have unduly delayed or acted in bad faith, that granting
leave to amend would unduly prejudice Defendants, or that granting leave to amend would be
futile. See Broidy, 944 F.3d at 447.
CONCLUSION
For the foregoing reasons, the Amended Class-Action Complaint and the Hoffman
Complaint are DISMISSED with leave to amend within twenty-one (21) days of this opinion
and order. The Clerk of Court is respectfully directed to terminate the pending motions at
ECF Nos. 76, 80, 85, 88, 91, 93, 111, and 115.
Dated: February 6, 2024
New York, New York
SO ORDERED.

JENNIFER L. ROCHON
United States District Judge

77