Section 230 Protects Securities Exchange–Saveene v. Remo
This case involves an alleged case of corporate hijacking. The plaintiff alleges that it bought a controlling interest in a corporate entity opaquely named American Diversified Holdings Corp. (“ADHC”) from Remo. Remo then allegedly dissolved the Nevada entity and, without permission, created a new entity in Wyoming with the same name and filed reports for “ADHC” with the OTC securities exchange. The buyer claimed that OTC “permitted Remo to disseminate false information” and “failed to properly investigate Remo and his fraudulent actions.” The buyer sued OTC for tortious interference, breach of fiduciary duty, and negligence. OTC successfully defended on Section 230 on a motion to dismiss.
The court applies the standard three-part test for Section 230:
- ICS Provider: “OTC disseminates information on listed companies.”
- Third-Party Information: The claims are based on information Remo (a third party) submitted about ADHC. The plaintiff claimed the OTC isn’t a “passive platform” (ugh) because it “reviews and investigates information published on its platform.” The court says that’s irrelevant; the plaintiff didn’t allege that OTC “assisted in the development of or contributed to the quarterly reports Remo published on behalf of ADHC.”
- Publisher/Speaker Claim. The claims are based on “OTC’s dissemination of alleged false information and failure to remove and investigate such information”–in other words, publishing content.
This is an interesting ruling for at least three reasons. First, the court applied Section 230 to a claim of fiduciary breach. That’s the kind of claim that some courts could treat as creating first-party liability not subject to 230, even if the facts won’t actually support a fiduciary duty. Here, I infer the plaintiff created the problem by focusing on disseminating information without adequately investigating it. If those are the plaintiff’s best facts to illustrate a fiduciary breach, then I think 230 was appropriate.
Second, this ruling opens up a range of possibilities for how other securities exchanges might benefit from Section 230. In the end, securities exchanges are fundamentally just information disseminators. The availability of Section 230 could lead to some interesting and unexpected outcomes.
Third, this ruling highlights the general lack of understanding about the interplay between Section 230 and the securities world. I have blogged about that intersection relatively rarely. One notable example was my 2008 comments to the SEC on Section 230’s applicability to linked content, an issue that I haven’t heard about since. This case might spur more securities lawyers to care more about Section 230.
Case citation: Saveene Corp. v. Remo, 2021 WL 4806380 (S.D.N.Y. Oct. 14, 2021)