Boeing Beats 737 MAX Fraud Suit From A Investment Fund That Never Bought Its Stock

A firm that never bought Boeing stock sued the company for securities fraud over the 737 MAX crashes. It bought recovery rights from funds whose purchases came after both crashes and the grounding. That company may only have owned stock after the crashes and for about a month. On Thursday, Chief Judge Virginia Kendall in Chicago permanently dismissed the lawsuit. I’ve written frequently about national treasure Matt Levine’s observation that everything is securities fraud. A public company does something bad. Its stock falls. Lawyers find an earlier statement suggesting the company wasn’t going to do the bad thing. The people who lost money owning the stock become victims, too. Southwest’s Christmas 2022 meltdown wasn’t just about stranding passengers. Investors allegedly weren’t told enough about the technology risks. American Airlines firing Vasu Raja and cutting its earnings outlook brought lawyers looking for shareholders to represent. Boeing’s Alaska Airlines door plug blowout became a case about the company’s earlier safety assurances. Spirit Airlines returning to bankruptcy produced claims that investors had been misled about its financial recovery. The Valinor funds behind the claims bought Boeing shares on or after June 28, 2019, and held them through and after July 24. Lion Air’s crash had happened in October 2018. Ethiopian Airlines’ crash followed in March 2019. The MAX was already grounded when the shares were purchased. Problems with the MAX were well known. The funds alleged that Boeing still misled them about the MAX’s certification, safety, investigation, and expected return to service. They said truthful information would have caused them to avoid buying the stock or pay less. Buying after a crash doesn’t give a company permission to offer a misleading account of what comes next. That’s fair enough, although it was always quite clear that the process was uncertain, outside of Boeing’s control (political) and involving regulators around the world. In July 2020, the funds transferred their right to sue to a third party, Value Recapture Partners. The firm filed this suit against Boeing and former CEO Dennis Muilenburg in December 2023. In a letter to the Securities and Exchange Commission, Value Recapture explained that it buys claims from investment funds that are shutting down. Otherwise, a fund might have to keep operating for years to monitor lawsuits, file paperwork, and distribute whatever eventually comes back. Selling the claim lets investors get some money now and close the fund. The buyer pays for an uncertain future recovery. But private securities fraud suits have restrictions that buying a claim doesn’t necessarily overcome. The Supreme Court’s Blue Chip Stamps decision limits private damages claims under Rule 10b-5 to actual purchasers or sellers of securities. The Court wanted documented transactions anchoring these cases, rather than lawsuits from people claiming they would’ve invested differently if only they’d been told the truth. Other courts have permitted assignments. In one Chicago case, the original investors retained their claims through a separate company when they sold their investment business. But they were still the people seeking recovery. The judge’s initial February dismissal distinguished that arrangement from selling claims to an unrelated business. She applied the purchaser-or-seller restriction to reject Value Recapture’s standing. Boeing and Muilenburg had already settled Securities and Exchange Commission proceedings over misleading statements following the crashes, agreeing to pay $200 million and $1 million. Topics on this page