According to a press release dated April 14, 2006, the court dismissed plaintiffs' action, concluding that defendants' alleged misstatements constituted puffery or were protected by the bespeaks caution doctrine and that plaintiffs failed to adequately allege scienter. The court reluctantly granted plaintiffs leave to re-plead, observing that PI's ultimate failure despite defendants' cautious optimism and PI's apparent initial success in raising eSpeed's revenue did not entitle eSpeed's investors to use federal securities law as a "scheme of investor's insurance."
The original purported class action complaint was filed against eSpeed, Cantor Fitzgerald, L.P. and certain affiliated entities, as well as certain of its officers, on behalf of all persons who purchased the securities of eSpeed, alleging that eSpeed made "material false positive statements during the class period" and violated certain provisions of the U.S. Securities Exchange Act of 1934, as amended, and certain rules and regulations thereunder.
Specifically, the Complaint alleges that during the Class Period, the defendants touted eSpeed as an unmitigated success story, a company which had achieved record revenues and earnings and, most importantly, a company that had established its infrastructure and business model as an unqualified success in the high volume automated trading of government securities and foreign exchange. In repeated press releases, the defendants represented that the eSpeed business model was in place and performing as anticipated. The true facts were that the business model was not working, and eSpeed was losing market share to its principle competitor, ICAP Plc, and its BrokerTec division. In fact, eSpeed did not have a viable business model. This was revealed on July 1, 2004 when defendants were forced to admit that revenues, earnings and market share were decreasing, that its business plan was not working, that it was being forced to develop a new business plan and pricing structure, and its competitive efforts with respect to ICAP were not successful. In the two trading days following this announcement, eSpeed shares dropped more than $6 per share on trading volume of over 9 million shares, a loss in market value for the Company of almost $350 million. As a result of the material false positive statements made during the Class Period, class members purchased eSpeed shares at inflated prices, and as a result were damaged thereby.