Court Issues Opinion in Nielsen Securities Suit, Granting Partial Dismissal

On Monday, Judge Jesse M. Furman of the Southern District of New York issued an opinion and order in the Nielsen Holdings securities litigation granting in part and denying in part Nielsen’s motion to dismiss the plaintiffs’ claims.

According to the filing, the plaintiffs and putative class are investors in Nielsen Holdings plc., a “publicly traded data analytics company most famous for its television ratings service.” The securities fraud lawsuit against Nielsen and several of its officers was filed pursuant to Section 10(b) and 20(a) of the Securities Exchange Act (the Exchange Act). The plaintiffs claimed that the defendants made false and misleading statements, such as “overstating the strength of Nielsen’s business segments.”

The filing noted that Nielsen uses “data obtained from third parties such as Facebook and Twitter for many of its products and services.” It added that Nielsen’s business is divided into two segments: “(1)’Buy,’ focused on consumer purchasing measurement and analytics in the Consumer Packaged Goods (“CPG”) space; and (2) ‘Watch,’ focused on media audience measurement and analytics.” The purportedly misleading statements in SEC filings concern “the Buy Segment and statements concerning the effect of the European Union’s General Data Protection Regulation (‘GDPR’) on Nielsen’s Watch Segment.”

For example, the allegedly misleading Buy Segment statements relate to its fourth-quarter earnings in 2015, projecting that its “Buy Development Market (‘BDM’) segment would report…growth in BDM revenue,” however this spending was actually declining throughout 2016. The defendants also purportedly “misrepresented the value of Buy Segment goodwill in Nielsen’s Forms 10-K for the years” 2016 and 2017. Additionally, the defendants allegedly misrepresented Nielsen’s Buy Emerging Market (BEM) revenue, claiming in 2018 that it would increase and that business was “‘exceptionally strong’” but in actuality, “Nielsen’s BEM clients were significantly reducing spending throughout 2018.”  

The court found that the complaint “does not adequately allege that Defendants were aware of the [BDM segment] trend in 2015 or in the first quarter of 2016” when they filed the at-issue SEC forms. The court added that since Nielsen grew in Q4 2015 and in Q1 2016, “the ‘most cogent inference’ from these allegations ‘is that [Nielsen] delayed releasing information on its (various SEC forms) to carefully review all of the relevant evidence and was at worst negligent as to the effect of the delay on investors.’”

The court found that the plaintiffs did not adequately plead scienter as to Nielsen’s 2016 Form 10-K and April 2016 Form 10-Q, thus these claims were dismissed. However, the defendants’ motion is denied as it relates to the allegations that Nielsen failed to disclose the trend in its July 2016 Form 10-Q and after that. For similar reasons, the court concluded that some, but not all, of the plaintiffs’ claims relating to the strength and stability of the BDM business survive dismissal. Additionally, the confidential witnesses “do not satisfy the heightened pleading standards or Rule 9(b) and the PSLRA.” Contrarily, the 2016 and 2017 BDM-related forecasts are declared “inactionable” by the court and the defendants’ motion for these claims are granted. The court also dismissed the plaintiffs’ BEM-related claims, but the value of Buy Segment goodwill statement claims pass muster.

The plaintiffs contended that Nielsen made false or misleading statements “about the effect of GDPR on Nielsen’s ability to acquire data from providers such as Facebook.” The sweeping privacy regulation took effect on May 25, 2018, and “created a system of rules restricting use of personal data.” Accordingly, before GDPR was enacted the defendants “assured the public that Nielsen was ready for the regulation and that it would be a ‘non-event.’” These assertions allegedly continued after the law was enacted; however, in September 2018, it was “revealed that, on the day that GDPR was enacted, Nielsen’s clients cut the company’s access to their data, shutting off 120 of Nielsen’s campaigns and raising doubts with respect to the truth of Nielsen’s past assurances.”

The plaintiffs took issue with Nielsen’s repeated alleged misrepresentations that its “WME business would grow and remain unaffected by GDPR.” The plaintiffs alleged that the defendants “had no reasonable basis to make these representations.” Additionally, after GDPR went into effect, the defendants allegedly continued to assert that “GDPR was a ‘non-event’ for Nielsen.” However, according to the filing, the “announcement of GDPR’s effect on the Watch Segment, negative growth in the Buy Segment, and Nielsen’s adjustments to its guidance precipitated a 25% drop in stock price.” The court found that as per the complaint, Nielsen noted in its post GDPR statements that it was surprised when its clients cut it off to access their data when GDPR was enacted, thus it could not have known in its pre-GDPR statements. As a result, the pre-GDPR statements were dismissed. However, the court found that the plaintiffs sufficiently alleged that the defendants’ statements after GDPR came into effect were misleading.

Nielsen is represented by Simpson Thacher & Bartlett LLP. The plaintiffs are represented by Labatons Sucharow LLP as well as Robbins Geller Rudman & Dowd LLP.