## Facts

- Investors brought a putative class action alleging IMAX Corporation and certain officers/directors overstated revenue through improper revenue-recognition practices in public filings and statements.
- After public disclosure of an SEC inquiry into IMAX’s revenue recognition, IMAX’s stock price declined sharply.
- IMAX later filed a Form 10‑K including a restatement affecting four prior fiscal years and changing when revenue from theater-system sales would be recognized.
- Under the revised approach, IMAX recognized revenue upon a theater’s public opening or the customer’s written acceptance, and shifted revenue for roughly 30 installation transactions (tens of millions of dollars) from earlier to later periods.
- Plaintiffs alleged the restatement, SEC inquiry, and defendants’ roles in financial reporting supported an inference that defendants knowingly or recklessly used an aggressive GAAP-noncompliant policy to accelerate revenue.

## Issues

1. Whether plaintiffs plausibly alleged materially false or misleading statements based on IMAX’s revenue-recognition practices and restatement.
2. Whether the complaint pleaded scienter with particularity and a strong inference under the PSLRA and Rule 9(b), assessed holistically under Tellabs.
3. Whether plaintiffs plausibly alleged loss causation by tying stock-price declines to corrective disclosures concerning the alleged misstatements.
4. Whether Section 20(a) control-person claims could proceed to the extent a primary Section 10(b)/Rule 10b‑5 violation was adequately pleaded.

## Decision

- The court granted the motion to dismiss in part and denied it in part.
- The court held plaintiffs plausibly pleaded actionable misstatements based on alleged premature revenue recognition, supported by the restatement and related allegations, for at least certain statements and a defined portion of the class period.
- The court found scienter adequately pleaded as to IMAX and certain individual defendants, relying on the magnitude and nature of the restatement, alleged GAAP violations, executive responsibilities for financial reporting, and circumstances surrounding the SEC inquiry.
- The court dismissed claims against certain defendants and/or based on certain statements where the complaint did not plead particularized facts tying those defendants to the alleged misconduct or supporting a strong inference of scienter.
- The court held loss causation was plausibly alleged where the complaint linked declines to disclosure of the SEC inquiry and later restatement-related information as corrective disclosures.
- The court allowed Section 20(a) claims to proceed only where an underlying Section 10(b) claim survived and control was sufficiently alleged; otherwise, Section 20(a) claims were dismissed.

## Legal Principles

- A financial restatement does not by itself establish securities fraud, but can support falsity and scienter when coupled with particularized allegations of improper accounting and management involvement.
- Under the PSLRA, scienter must be pleaded with particularity and must yield a strong inference of intent to deceive or conscious recklessness when the allegations are considered collectively.
- Allegations about executive roles in preparing, certifying, and overseeing financial statements, combined with facts suggesting access to information contradicting public reporting, may support a strong inference of scienter at the pleading stage.
- Loss causation is plausibly pleaded when the complaint alleges that the market learned corrective information (including through staged disclosures) and that the stock price decline followed as a result.
- Section 20(a) liability depends on a sufficiently pleaded primary violation and plausible allegations of control; it fails where the primary claim is not adequately alleged.

## Conclusion

The court permitted core accounting-based securities-fraud claims to proceed where the complaint used the restatement, alleged GAAP violations, executive involvement, and disclosure-related price drops to plead falsity, scienter, and loss causation, while dismissing claims that lacked defendant-specific scienter allegations or an adequately pleaded primary violation.


In re IMAX Sec. Litig., 587 F. Supp. 2d 471 (S.D.N.Y. 2008)