DLA Piper secures class action victory on behalf of John Brda, former CEO and Chairman of Torchlight Energy Resources, Inc.

DLA Piper secured a complete 12(b)(6) dismissal with prejudice of a Section 12(a)(2) Securities Act claim on behalf of client John Brda, the former CEO and Chairman of Torchlight Energy Resources, Inc., in a securities class action in the Northern District of Texas.

Plaintiffs alleged that Mr. Brda orchestrated a publicly disclosed “short squeeze” to drive up the price of company stock and allow the company to raise US$137 million through its public offering. Plaintiffs also alleged that Mr. Brda used social media – including X/Twitter, Reddit, and other channels – to promote the company’s stock and combat short-sellers. After a reverse merger, holders of the company stock received a preferred dividend, which was later distributed as shares in a private company.

DLA Piper moved for dismissal on multiple grounds, including that Plaintiffs did not “purchase” the shares they received; rather, they received them as a distribution. The Court agreed and held “Plaintiffs would have the Court extend Section 12 even further, so as to encompass ‘sellers’ who merely promote a security by soliciting purchases of a different security.”

The Court further admonished Plaintiff for “try[ing] to retroactively reframe their pleadings in their response to [DLA]’s motion to dismiss” and that “Plaintiffs’ own pleadings totally belie their characterization.” The Court dismissed all claims with prejudice and no opportunity to re-plead.

The DLA Piper team included Partners Jason Lewis, Jason Hopkins (both Dallas), and Richard Zelichov (Los Angeles), as well as Associate Ryan Lantry (Dallas).

This was a significant victory as the same DLA Piper team is handling an SEC enforcement action in the Eastern District of Texas that alleges similar violations against Mr. Brda.