The US Court of Appeals for the Second Circuit recently upheld a $1 damages award in a breach of contract issue, in which 6D Global Technologies retained Brattle to analyze the value of a complicated investment.
In September 2014, an investor agreed to purchase 2,900,000 shares in 6D Acquisitions, a special purpose vehicle formed for investing in digital marketing/technology company 6D Global Technologies. After entering the agreement but before the investor received his shares, two reverse stock splits occurred to preserve the stock price of 6D Global Technologies and allow it to remain listed on NASDAQ. As a result, the investor received 6.9 times fewer shares than purchased when the official offering closed. He then sued 6D Global Technologies, 6D Acquisitions, and Tejune Kang, alleging that they had breached the subscription agreement and violated Rule 10b-5.
To determine the value of the shares he purchased but did not receive, the investor used simple arithmetic calculations to demand $19.6 million in damages. Principal Paul Hinton testified as an expert witness at the virtual trial that, due to the fragile nature of 6D Global Technologies, no simple rule of thumb could be applied to establish valuation in this instance.
Following the March 2021 trial, District Judge Lorna G. Schofield determined that, though the subscription agreement had been breached, Mr. Hinton’s trial testimony helped demonstrate that no simple valuation could determine the investment’s but-for value due to the fragile nature of 6D Global Technologies. In November 2022, the Second Circuit affirmed the lower district court decision, upholding the damages amount and rejecting the plaintiff’s assertion that the district court had erred in admitting Mr. Hinton’s expert testimony.
Read the full case highlight here.