The plaintiff in a federal securities lawsuit filed against Archer Aviation last month has voluntarily moved to dismiss the case, according to a statement issued on October 24 by the California-based eVTOL air taxi developer.
On September 21, Archer investor Ken Cenderelli filed a securities class action lawsuit in the U.S. District Court for the Northern District of California in San Francisco, naming Archer and several of its top executives as defendants in the case, including company co-founder and CEO Adam Goldstein, co-founder and former co-CEO Brett Adcock, chief financial officer Mark Mesler, and former CFO Ben Lu.
Cenderelli’s complaint alleged that Archer grossly overstated its progress in the development and type certification of its four-passenger Midnight eVTOL aircraft and that the company used “heavily edited” video footage to exaggerate the amount of flight testing it had done. It further alleged that Archer “misrepresented the nature and profitability of its business partnerships” and that the company sought to purchase credibility by partnering with United Airlines and Stellantis. Notably, Archer also recently partnered with Boeing-backed eVTOL developer Wisk Aero after the two parties settled a trade-secrets lawsuit.
Archer says it is on track to have its Midnight aircraft certified and in service by the end of 2025. Although it has not yet begun flight testing with the first Midnight prototypes, the company has conducted extensive flight testing with its two-seat Maker eVTOL technology demonstrator since its first flight in December 2021. Nikhil Goel, Archer’s chief commercial officer, told AIN that Archer is flying Maker on a daily basis and that the company expects to begin flying with Midnight “soon.”
According to Cenderelli’s lawsuit, Archer violated the Securities Exchange Act of 1934, a law aimed at curbing fraud and ensuring transparency on the stock market, by knowingly misrepresenting facts and misleading investors. The class action therefore sought financial compensation for anyone who purchased or otherwise acquired stock in the company between Sept. 17, 2021, when Archer was first listed on the New York Stock Exchange, and Aug. 15, 2023. The end of that class period happens to coincide with publication of a damning report by Grizzly Research, in which the authors made the exact same claims as Cenderelli.
Over the class period, Archer stock dropped from $9.48 per share to $7.22. For much of the past year, that number has hovered around the $3 mark, occasionally dipping below $2. However, the share price more than doubled over the summer after Archer completed the assembly of its first Midnight eVTOL aircraft and announced a $142 million defense contract.
On October 13, Archer’s attorneys filed a motion to dismiss the complaint “for failure to state a claim upon which relief can be granted.” Archer’s attorneys called Cenderelli’s claims “frivolous” and said his lawsuit does not comply with the Private Securities Litigation Reform Act (PSLRA) because it “fails to meet the heightened pleading requirements for falsity and scienter,” or deliberate wrongdoing.
“The Complaint here does not even attempt to plead scienter and comes nowhere close to meeting the exacting requirements for pleading falsity under the PSLRA,” Archer’s attorneys wrote in the motion to dismiss. “Indeed, it is a paradigmatic example of the abusive lawyer-driven lawsuit that Congress intended to eliminate when it enacted the PSLRA to combat the ‘routine filing of lawsuits against issuers of securities and others whenever there is a significant change in an issuer’s stock price.’”
Archer’s attorneys further accused Cenderelli of filing his initial claim “without any factual support in hopes that some evidence might be developed somewhere down the line. But this 'shoot-first-and-comply-with-Rule-11-later' style of pleading is improper and plainly contrary to the statutory text, and the court should not look the other way.” Rule 11 of the PSLRA requires the plaintiff’s legal representation to verify that their client’s claims are backed by evidence. On October 23, Cenderelli filed a stipulation for voluntary dismissal.
“We are very pleased that the plaintiff has decided to dismiss the case. Archer continues to remain focused on delivering on its mission and creating value for shareholders,” said Archer chief legal officer Andy Missan.