Opinion

STERLING v. IRIS ENERGY LIMITED

Court: District Court, D. New Jersey
Filed: Sep 27, 2024
Cited by: 0 cases
Authority: More cited than 31.6%

“And maybe just to recap, the debt that we have today is all on a non-recourse ring-fenced basis secured against some of the computers that we procured. The balance is all equity. So it’s a very clean balance sheet. It’s a strong balance sheet. It was done very deliberately.”

How later courts described this case

“And maybe just to recap, the debt that we have today is all on a non-recourse ring-fenced basis secured against some of the computers that we procured. The balance is all equity. So it’s a very clean balance sheet. It’s a strong balance sheet. It was done very deliberately.”
“statements regarding goodwill valuations are opinion statements because they ‘are inherently subjective and involve management’s opinion regarding fair value.’”
“The emphasis on a fact-specific determination of materiality militates against a dismissal on the pleadings.”

Written by the judges who cited it.

The opinion

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

SCOTT STERLING, individually and on

behalf of all others similarly situated,

Plaintiff,

v. Civil Action No. 22-07273

IRIS ENERGY LIMITED, DANIEL

OPINION

ROBERTS, WILLIAM ROBERTS, DAVID

BARTHOLOMEW, CHRISTOPHER

GUZOWSKI, MICHAEL ALFRED, J.P.

September 27, 2024

MORGAN SECURITIES LLC,

CANACCORD GENUITY LLC, CITIGROUP

GLOBAL MARKETS INC., CANTOR

FITZGERALD & CO., GALAXY DIGITAL

PARTNERS LLC, COMPASS POINT

RESEARCH & TRADING, LLC, and

MACQUARIE CAPITAL (USA) INC.,

Defendants.

SEMPER, District Judge.

Before the Court is Defendants Iris Energy Limited, Michael Alfred, David Bartholomew,

Christopher Guzowski, Daniel Roberts, William Roberts, J.P. Morgan Securities LLC, Canaccord

Genuity LLC, Citigroup Global Markets Inc., Macquarie Capital (USA) Inc., Cantor Fitzgerald &

Co., Compass Point Research & Trading, LLC, and Galaxy Digital Partners LLC’s (collectively

“Defendants”) motion to dismiss Plaintiffs’ First Amended Complaint (ECF 38, “FAC”) pursuant

to Federal Rule of Civil Procedure 12(b)(6). (ECF 47.) Plaintiffs filed a brief in opposition. (ECF

56, “Opp.”) Defendants filed a reply. (ECF 63, “Reply.”) The Court reviewed the Plaintiffs’ First

Amended Complaint and the parties’ submissions and decided the motion without oral argument

pursuant to Federal Rule of Civil Procedure 78 and Local Civil Rule 78.1. For the reasons set forth

below, Defendants’ motion to dismiss is GRANTED.

I. FACTUAL AND PROCEDURAL BACKGROUND1

This putative securities class action lawsuit alleges Iris Energy Limited (“Iris”)—a Bitcoin

mining company that primarily uses renewable energy to power its mining operations—and its co-

defendants violated the Securities Act of 1933 and the Securities Exchange Act of 1934. (ECF 38,

FAC ¶¶ 1-7.) Plaintiffs assert this lawsuit on behalf of a class of all persons and entities that

purchased or otherwise acquired: (a) Iris ordinary shares pursuant and/or traceable to the offering

documents issued in connection with Iris’ initial public offering conducted on or about November

17, 2021 (the “IPO”) and/or (b) Iris securities between November 17, 2021 and November 1, 2022

(the “Class Period”). (Id. ¶ 1.)

A. Defendants

Defendant Iris is organized under the laws of Australia with principal executive offices

located at Level 12, 44 Market Street, Sydney, NSW 2000 Australia. (Id. ¶ 21.) Since 2019, Iris

has mined Bitcoin. (Id. ¶ 2.) As explained in Iris’ Prospectus:

Bitcoin is a scarce digital asset that is created and transmitted

through the operation of a peer-to-peer network of computers

running the Bitcoin software. The Bitcoin network allows people to

exchange digital tokens, called Bitcoin, which are recorded on a

publicly distributed digital transaction ledger forming the Bitcoin

blockchain, which contains the record of every Bitcoin transaction

since the inception of Bitcoin. The Bitcoin network is decentralized,

meaning no central authority, bank or financial intermediary is

required to create, transmit or determine the value of Bitcoin.

1 When considering a motion to dismiss under Rule 12(b)(6), the Court is obligated to accept as true

allegations in the complaint and all reasonable inferences that can be drawn therefrom. See Rocks v. City of Phila.,

868 F.2d 644, 645 (3d Cir. 1989). The Court also considers any “document integral to or explicitly relied upon in the

complaint.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (quoting Shaw v. Digit.

Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)).

(ECF 47-4, Ex. B at 94.) While Iris does not hold Bitcoin on its balance sheet, Iris’ operations

“generate revenue by earning Bitcoin through a combination of block rewards and transaction fees

from the operation of specialized computing equipment called ‘miners’ or ‘Bitcoin miners’ and

exchanging these Bitcoin for fiat currencies such as U.S. dollars (“USD”) or Canadian dollars

(“CAD”) on a daily basis.” (FAC ¶¶ 2-3.)

Defendant Daniel Roberts (“D. Roberts”) has served as a co-chief executive officer (“co-

CEO”) and director of Iris at all relevant times. (Id. ¶ 22.) D. Roberts signed or authorized the

signing of the Registration Statement filed with the SEC. (Id.) Defendant William Roberts (“W.

Roberts”) was co-CEO and director of Iris at all relevant times. (Id. ¶ 23.) W. Roberts signed or

authorized the signing of the Registration Statement filed with the SEC. (Id.) Iris, D. Roberts, and

W. Roberts are sometimes collectively referred to as the “Exchange Act Defendants.” (Id. ¶ 26.)

Defendant David Bartholomew (“Bartholomew”) has served as the Chairman of Iris at all

relevant times. (Id. ¶ 27.) Bartholomew signed or authorized the signing of the Registration

Statement filed with the SEC. (Id.) Defendant Christopher Guzowski (“Guzowski”) has served as

a Director of Iris at all relevant times. (Id. ¶ 28.) Guzowski signed or authorized the signing of the

Registration Statement filed with the SEC. (Id.) Defendant Michael Alfred (“Alfred”) has served

as a Director of Iris at all relevant times. (Id. ¶ 29.) Alfred signed or authorized the signing of the

Registration Statement filed with the SEC. (Id.) Plaintiffs collectively refer to Defendants D.

Roberts, W. Roberts, Bartholomew, Guzowski, and Alfred as the “Securities Act Individual

Defendants.” (Id. ¶ 30.) Plaintiffs assert that as directors, executive officers, and/or major

shareholders of the Company, the Securities Act Individual Defendants participated in the

solicitation and sale of Iris ordinary shares in the IPO for their own benefit and the benefit of the

Iris. (Id. ¶ 31.) The Securities Act Individual Defendants were key members of the IPO working

group and executives of the Company who pitched investors to purchase the shares sold in the

IPO. (Id.)

Defendant J.P. Morgan Securities LLC is an underwriter and served as one of the three

joint book-running managers for the IPO. (Id. ¶ 32.) Defendant Citigroup Global Markets Inc. is

an underwriter and served as one of the three joint book-running managers for the IPO. (Id. ¶ 33.)

Defendant Canaccord Genuity LLC is an underwriter and served as one of the underwriters for the

IPO. (Id. ¶ 34.) Defendant Macquarie Capital (USA) Inc. is an underwriter and served as one of

the underwriters for the IPO. (Id. ¶ 35.) Defendant Galaxy Digital Partners LLC is an underwriter

and served as one of the underwriters for the IPO. (Id. ¶ 36.) Defendant Cantor Fitzgerald & Co.

is a corporation providing financial and investment banking services, and it served as one of the

underwriters for Iris’ IPO. (Id. ¶ 37.) Defendant Compass Point Research & Trading, LLC is a

corporation providing financial and investment banking services, and it served as one of the

underwriters for Iris’ IPO. (Id. ¶ 38.)

Defendants J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Canaccord

Genuity LLC, Cantor Fitzgerald & Co., Macquarie Capital (USA) Inc., Compass Point Research

& Trading, LLC, and Galaxy Digital Partners LLC are collectively referred to herein as the

Underwriter Defendants. (Id. ¶ 39.) The Underwriter Defendants received commissions of

$16,207,693 for their work on the IPO. (Id. ¶ 40.) The underwriters were also allocated a greenshoe

option to purchase an additional 1,240,384 shares within 30 days of settlement at the IPO price.

(Id.) Moreover, the Prospectus stated that Iris Energy entered into an underwriting agreement with

the Underwriter Defendants. (Id. ¶ 41.) Subject to the terms and conditions of the underwriting

agreement, Iris agreed to sell to each Underwriter, and each Underwriter severally agreed to

purchase, at the public offering price less the underwriting discounts and commissions, a certain

number of ordinary shares. (Id.)

B. The Initial Public Offering

On October 25, 2021, Iris filed a registration statement on Form F-1 with the Securities

and Exchange Commission (“SEC”), which the SEC declared effective on November 16, 2021

(the “Registration Statement”). (Id. ¶ 4.) On or about November 17, 2021, Iris conducted the IPO,

issuing approximately 8,269,231 shares to the public at $28 per ordinary share for gross proceeds

to Iris of $231,538,468. (Id. ¶ 6.) Iris’ ordinary shares trade in an efficient market on the NASDAQ

under the ticker symbol “IREN.” (Id. ¶ 22.) The underwriters were given a “greenshoe” option to

purchase an additional 1,240,384 shares within 30 days of settlement at the IPO price. (Id. ¶ 6.)

On November 18, 2021, Iris filed a prospectus on Form 424B4 with the SEC in connection with

the IPO, which incorporated and formed part of the Registration Statement (the “Prospectus,”

together with the Registration Statement, the “Offering Documents”). (Id. ¶ 5.)

C. Allegations Related to the Securities Act of 1933

Plaintiffs assert the Offering Documents contained untrue statements of material fact or

omitted other facts necessary to make the statements not misleading. (Id. ¶ 7.) With respect to Iris’

use of equipment financing agreements for Bitcoin miners, the Offering Documents stated:

We are party to equipment finance and security agreements,

denominated in US dollars, pursuant to which an equipment

financier has agreed to finance part of the purchase of various miners

that have been delivered to us or will be delivered to us. As of

September 30, 2021, the aggregate amount of the loan facilities was

$53.9 million, and the aggregate amount of funds borrowed under

these loans was $22.9 million. The loans carry an annual interest

rate of 12% and are to be repaid through monthly payments of

interest and principal through September 2023. The agreements

include customary restrictions and outstanding borrowings are

secured by the financed mining units purchased with the loans.

(Id. ¶ 53.) The Offering Documents stated that Iris had a competitive advantage over other Bitcoin

miners because it contracted with Bitmain Technologies to acquire “new generation miners” that

would give it mining capacity of 15.2 EH/s. (Id. ¶ 54.) The Prospectus also represented that Iris

owned its mining equipment, which provided Iris with control over its assets and gave it “more

sustainable cash flows” over competitors that leased their equipment or utilized third-party hosting

agreements. (Id. ¶ 55.) Specifically, the Offering Documents stated that Iris has “ownership of our

electrical infrastructure and data centers . . . [which] provides us with security and operational

control over our assets. Long-term asset ownership also allows our business to benefit from more

sustainable cash flows in comparison with miners that rely upon third-party hosting services . . . .”

(Id.) The Offering Documents also stated that Iris was “both the owner and operator of our

hardware infrastructure . . . .” (Id.) The Offering Documents further stated:

In addition, we believe that we are able to identify and respond to

operational issues in a more efficient and timely manner than would

be the case under an outsourced hosted model. We believe this

allows us to maximize operating performance as well as hardware

life.

While outsourcing infrastructure and operations and maintenance to

third-parties may result in near-term returns and scale, short-term

contractual arrangements may result in increased counterparty risk

(e.g. potential non-performance, delays and disputes) and renewal

risk.

(Id.) The Prospectus also indicated that Iris was experiencing rapid growth and was well-

positioned to continue such strong revenue growth because of its facilities capable of supporting

the targeted hashrate2 capacity of 15.2 EH/s. (Id. ¶ 56.) Plaintiffs assert that the above statements

were materially false or misleading because the Offering Documents contained untrue statements

2 The Offering Documents define hashrate as “[t]he speed at which a miner can produce computations

(hashes) using the Bitcoin network’s algorithm, expressed in hashes per second. The hashrate of all miners on a

particular network is referred to as the hashrate of the network.” (ECF 44-4, Ex. B at 8.)

of material fact or omitted to state other facts necessary to make the statements not misleading.

Specifically, Plaintiffs assert that the Offering Documents failed to disclose:

(1) certain of Iris’s Bitcoin miners were owned through allegedly

Non-Recourse SPVs which had been financed by third party lenders,

which made Iris’ operations, including the mining equipment and

Bitcoin mined, subject to the very “increased counterparty risk” that

the Offering Documents stated Iris Energy was immune from; (2)

the SPVs and Iris Energy had the same individuals on their board

and otherwise failed to maintain sufficient corporate distinctness to

provide protection to Iris in the event of a default by the SPVs; (3)

Iris Energy had not only pledged the bitcoin mining equipment as

collateral to the lender, but had also pledged the Bitcoin mined by

the equipment and the proceeds from the sale of the Bitcoin as

collateral; (4) the undisclosed SPVs were not capable of producing

sufficient cash flow to service their respective debt financing

obligations; (5) accordingly, Iris’s use of equipment financing

agreements to procure Bitcoin miners was subject to substantial risk,

including counterparty risks; (6) the foregoing was likely to have a

material negative impact on the Company’s business, operations,

and financial condition; and (7) as a result, the Offering Documents

were materially false and/or misleading and failed to state

information required to be stated therein.

(Id. ¶ 57.) Plaintiffs further assert that the Offering Documents failed to disclose: (1) a default by

any of the three SPVs would materially increase Iris Energy’s electricity costs per Bitcoin mined

because the Company had in place fixed-price contracts for power, resulting in higher demand

charges; (2) any default by one or more of the SPVs would adversely impact the Company’s

operating metrics; with a lower operating capacity, increased electricity costs per Bitcoin mined,

Iris Energy’s revenue and operating cash flows would decline materially, resulting in significant

net operating losses; and (3) the SPVs were financed by New York Digital Investment Group, LLC

(“NYDIG”) and Defendant Alfred had an equity interest in NYDIG. (Id. ¶¶ 59-60.)

Plaintiffs allege that statements regarding Iris’ assets, profits and losses, and overall

financial condition were false and misleading because Iris’ assets were overstated since Iris failed

to record material impairment charges to its goodwill. (Id. ¶ 63.) The Prospectus represented that

the Company had $880 million (Australian dollars) in goodwill. (Id. ¶ 66.) The Prospectus stated

that goodwill arose on the acquisition of a business, and Iris tested annually “whether goodwill has

suffered any impairment. The recoverable amounts of cash-generating units have been determined

based on fair value less costs of disposal calculations.” (Id. ¶¶ 64-65.) “Impairment losses on

goodwill are taken to profit or loss and are not subsequently reversed.” (Id. ¶ 65.) The Prospectus

explained that no further impairment to goodwill needed to be recognized. (Id. ¶ 67.) Plaintiffs

assert that Iris’ goodwill required further impairment reductions because of problems with the

SPVs, including but not limited to Iris’ Bitcoin miners not having the capacity or ability to generate

enough revenue to service the debt Iris obtained to finance the Bitcoin mining equipment. (Id. ¶¶

68-69.) Plaintiffs conclude that the Offering Documents were false and misleading because they

overstated Iris’ goodwill and did not reflect necessary impairment charges to the goodwill’s value

associated with the SPVs, mining equipment, and other Iris assets. (Id. ¶ 72.)

D. Allegations Related to the Exchange Act of 1934

a. February 9, 2022 Press Release and Form 6K

On February 9, 2022, Iris issued a press release reporting Iris’ second quarter 2022 results

for the period ending December 31, 2021. (Id. ¶ 74.) The press release quoted Defendant D.

Roberts, who stated Iris “is on track to be one of the largest listed Bitcoin miners with 15 EH/s3

of hardware secured[.]” (Id.)

That same day, Iris filed a report of foreign issuer on Form 6-K with the SEC, appended to

which were Iris’ Unaudited Interim Consolidated Financial Statements for the Three and Six

Months ended December 31, 2021 (the “2Q22 6-K”) as well as an Investor Presentation slide deck.

(Id. ¶ 75.) In the Investor Presentation, Iris represented that there were four key drivers for success

in the Bitcoin mining industry: Miners (more miners = more Bitcoin mined = higher revenues);

Megawatts; Money (capital to fund growth); and Management. (Id.) With respect to Miners, Iris

represented that it was well positioned to increase growth and profits because it had the second-

most miners of any company in its field. (Id. ¶ 76.) In the Investor Presentation, Iris stressed the

competitive advantages that it allegedly possessed because it owned its data mining equipment as

compared to competitors who used third-party hosting services. (Id. ¶ 77.) Iris Energy told

investors that it expected revenues of $695 million by early 2023 and profits of $578 million. (Id.

¶ 78.)

Plaintiffs assert these statements were later revealed to be false and inaccurate. (Id. ¶ 79.)

When Iris reported its results for Q2 2023 on February 15, 2023, it reported a total operating

capacity of 1.7 EH/s compared to the 10 EH/s it told investors it would deliver by such time in its

February 9, 2022 presentation. (Id.) Iris said it “intended” to be able to increase its capacity to 5.5

EH/s down the line. (Id.) Additionally, Iris reported a net loss after income taxes of $144 million

for Q2 2023. (Id.)

With respect to the Company’s equipment financing agreements to procure Bitcoin miners,

the 2Q22 6-K stated, in relevant part:

The [Company] has entered into equipment finance and security

agreements pursuant to which an equipment financier has agreed to

finance the purchase of various mining hardware that have been

delivered or yet to be delivered. These facilities carry an annual

contractual interest rate of 12% and are denominated in United

States dollars. The facilities are repaid through blended monthly

payments of interest and principal with the final payment due to the

financier on 25 September 2023.

(Id. ¶ 81.) Plaintiffs assert this statement was false and misleading because it (1) failed to identify

NYDIG as the lender; (2) made no disclosure of the use of the SPVs; (3) made no disclosure about

any collateral pledged by Iris for the loans, including that Iris had pledged the Bitcoin mined by

the SPVs as collateral and that Iris was allegedly not maintaining sufficient corporate formalities

or separateness between the SPVs and Iris to protect Iris from having its assets pursued by the

lender in the event of a default by the SPVs; and (4) failed to disclose Defendant Alfred’s affiliation

with NYDIG. (Id. ¶ 82.)

The press release also contained “Key Highlights” about the Company’s purported

“record” revenue, adjusted EBITDA, and average operating hashrate of 685 PH/s and 364 Bitcoin

mined for the quarter. (Id. ¶ 84.)

The 2Q22 6-K also included a “going concern” warning that Iris’

“ability . . . to continue as a going concern depends upon the

[Company] maintaining sustained positive free operating cash flows

and securing additional capital to fund the contracted mining

hardware purchases and infrastructure spend, as part of its growth

plan[,]” while simultaneously assuring investors that “[t]he strategy

to mitigate these risks and uncertainties is to execute a business plan

aimed at continued operational efficiency, revenue growth,

improving overall mining profit, managing operating and capital

expenditure and working capital requirements, and securing

additional financing, as needed.”

(Id. ¶ 85.) Plaintiffs allege that Iris’ assurances regarding the strength of its business plan, strong

cash flows, and ability to raise debt to fund its growth concealed the real risks and problems faced

by Iris Energy at the time and prevented the stock from declining. (Id. ¶ 86.) Iris’ stock increased

from a close of $14.28 on February 9, 2022 to $14.74 on February 10, 2022 and then closed at

$14.78 on February 11, 2022. (Id.)

b. March 28, 2022 Press Release

On March 28, 2022, Iris issued a press release announcing the closing of an additional $71

million equipment financing facility with NYDIG. (Id. ¶ 87.) That press release highlighted that

this was the “[t]hird facility secured with NYDIG, further cementing [a] long-term partnership”;

that the facility was “[s]ecured by 19,800 Bitmain S19j Pro miners”; and that “~10 EH/s of the

Company’s total stock of contracted miners remain unencumbered, providing substantial balance

sheet flexibility to secure additional non-dilutive funding in due course.” (Id.) The press release

quoted D. Roberts, who stated:

We are delighted to again partner with an industry leader such as

NYDIG who have been a long-standing supporter of our business.

This is our third equipment financing facility together and we look

forward to formalizing additional loan facilities as miners continue

to be delivered and installed. This transaction further demonstrates

the capital structure benefits in having a strong balance sheet and

owning and controlling our own infrastructure.

With substantial equity raised to date, meaningful operational

cashflow and a 15 EH/s installation schedule which remains on

track, we are pursuing a number of other sources of non-dilutive

funding to continue the Company’s rapid growth trajectory and

delivery of shareholder value, noting that we as management

continue to hold approximately one quarter of the shares on issue.

(Id. ¶ 88.) On March 28, 2022, Iris stock closed at $13.86 per share. (Id. ¶ 89.) On March 29, 2022,

stock closed at $15.61 per share, and then at $15.90 per share on March 30, 2022, an increase of

14.7%. (Id.)

Plaintiffs assert that these press release statements were false and misleading because they

failed to disclose: (i) that Iris’ MFEAs (Master Finance Equipment Agreements) with NYDIG

included provisions pledging the Bitcoin mined (and proceeds from the sale of Bitcoin) as

collateral, not just the mining equipment; (ii) the SPVs were not capable of servicing the debt,

allegedly jeopardizing Iris’ cash flows and operations; and (iii) NYDIG, the lender that was given

a security interest, was allegedly a related party because Iris Director Michael Alfred had a

significant equity interest in NYDIG, which he had acquired when he sold his business Digital

Assets Data, Inc. to NYDIG. (Id. ¶¶ 90-91.)

c. May 11, 2022 Form 6-K

During and after May 2022, the price of Bitcoin began to drop. (Id. ¶ 93.) On May 11,

2022, Iris filed a report of foreign issuer on Form 6-K with the SEC, appended to which were the

Company’s Unaudited Interim Consolidated Financial Statements for the Three and Nine Months

ended March 31, 2022 (the “3Q22 6-K”). (Id. ¶ 94.) Regarding the Company’s equipment

financing agreements to procure Bitcoin miners, the 3Q22 6-K stated, in relevant part:

Mining hardware finance[.] During the year ended 30 June 2021, the

Group entered into equipment finance and security agreements

pursuant to which an equipment financier agreed to finance the

purchase of various mining hardware that have been delivered or yet

to be delivered. These facilities carry an annual contractual interest

rate of 12% and are denominated in United States dollars. The

facilities are repaid through blended monthly payments of interest

and principal with the final payment due to the financier on 25

September 2023.

On 25 March 2022, the Group entered into a US$71.0 million

(A$93.6 million) limited recourse equipment finance and security

agreement with NYDIG ABL LLC. The facility has a contractual

term of 25 months and is secured by 19,800 Bitmain S19j Pro miners

(1.98 EH/s) with an applicable interest rate of 11% per annum. The

facilities are repaid through blended monthly payments of principal

and interest with the final payment due April 2024. As of 31 March

2022, the Group had an undrawn balance of A$31.4 million

available on the facility.

(Id.) Plaintiffs assert these statements were false and misleading because they failed to disclose (i)

that Iris’ MFEAs with NYDIG included provisions pledging the Bitcoin mined (and proceeds from

the sale of Bitcoin) as collateral, not just the mining equipment; (ii) Alfred’s affiliation with

NYDIG; and (iii) that the SPVs failed to maintain corporate formalities or distinctness from Iris.

(Id. ¶ 95.)

d. May 11, 2022 Conference Call

On May 11, 2022, D. Roberts hosted a conference call with analysts to discuss the

Company’s Q3 2022 financial results. (Id. ¶ 96.) During the call, he emphasized Iris’ strong

balance sheet, positive free cashflow, and the fact that the collateral for the Company’s equipment

financing was limited to the equipment held within the SPVs, thus purportedly protecting the

Company from any failure of the SPVs. (See id. (“And maybe just to recap, the debt that we have

today is all on a non-recourse ring-fenced basis secured against some of the computers that we

procured. The balance is all equity. So it’s a very clean balance sheet. It’s a strong balance sheet.

It was done very deliberately.”); id. ¶ 97 (“So sitting here today we feel like, we’ve got a very

strong balance sheet almost $0.5 billion of equity sitting there. No corporate debt. The only debt

is ring-fenced to some of the computers in SPVs.”).) D. Roberts also emphasized Iris’ favorable

energy contracts that provided its Bitcoin mining operations with low-cost renewable energy. (Id.

¶ 101.) He also represented that Iris had the ability to drive these prices even lower due to its

ownership and control of not only the computers, but also the land and all the electrical

infrastructure. (Id. ¶¶ 101-02.)

Iris’ stock price increased from $6.89 on May 11, 2022 to $7.71 on May 13, 2022, a 11.9%

increase. (Id. ¶ 107.)

e. June 7, 2022 Press Release

On June 7, 2022, Iris issued a press release announcing an investor update for May 2022.

(Id. ¶ 109.) The press release stated that “[m]ultiple debt processes remain underway, with

discussions involving various aspects of the capital structure, for example, equipment financing

similar to the recent $71m NYDIG facility (1.98 EH/s of miners secured),” and “[t]he Company

remains focused on prudently assessing various options and ensuring that any decisions consider

an appropriate long-term capital structure for the Company.” (Id.) In addition, the press release

allegedly downplayed the severity of debt from equipment financing agreements by highlighting

in its “Business summary” that there was “[n]il corporate-level debt” and stating in a footnote that

“[e]quipment financing is limited recourse financing within wholly owned subsidiaries of the

Company.” (Id. ¶ 110.)

f. June 21, 2022 Press Release

On June 21, 2022, Iris issued a press release providing an updated operating and capital

expenditure guidance, stating, in relevant part:

The Company has explored multiple financing options presented to

it in recent months, and has determined that maintaining balance

sheet flexibility is prudent having regard to market conditions and

available financing terms. As market conditions have deteriorated,

the Company continues to believe this is the prudent approach. As a

result, the Company expects to defer major additional capital

expenditure until the current market uncertainty subsides and

financing terms improve. The Company will continue to monitor

funding markets closely, and if conditions become favorable, the

Company expects to explore raising additional capital.

(Id. ¶ 111.) The June 21, 2022 press release also stated that “[t]he Company currently has no

corporate debt on its balance sheet” and stating in a footnote that “[e]xisting equipment financing

is limited recourse financing within wholly owned subsidiaries of the Company.” (Id. ¶ 112.)

g. September 13, 2022 Press Release

On September 13, 2022, Iris issued a press release reporting Iris’ full year 2022 results for

the period ended June 30, 2022. (Id. ¶ 113.) That press release quoted Defendant D. Roberts, who

represented, in relevant part: “Looking forward, the recent volatility in the Bitcoin price and related

industry challenges reaffirms our confidence in our long-term vertically integrated strategy. We

remain focused on building a multi-decade, institutional grade, infrastructure platform while

maintaining balance sheet discipline.” (Id.) The press release also states that “[c]ash and cash

equivalents as of June 30, 2022 was $110.0 million, with no corporate debt held by the Company

on its balance sheet” and stating in a footnote that “[e]xisting equipment financing ($109.4 million

as of June 30, 2022) is limited recourse financing within wholly owned subsidiaries of the

Company.” (Id. ¶ 114.) Plaintiffs assert this downplayed the severity of debt from equipment

financing agreements. (Id.)

h. September 13, 2022 Form 20-F

Also on September 13, 2022, Iris filed an annual report on Form 20-F with the SEC,

reporting Iris’ financial and operational results for its fiscal fourth quarter and year ended June 30,

2022 (the “2022 20-F”). (Id. ¶ 115.) Regarding Iris’ use of equipment financing agreements to

procure Bitcoin miners, the 2022 20-F stated, in relevant part:

We are party to equipment finance and security agreements,

denominated in US dollars, pursuant to which an equipment

financier has agreed to finance part of the purchase of various miners

that have been delivered to us or will be delivered to us. As of June

30, 2022, the aggregate amount drawn under the loan facilities was

$109.4 million.

(Id. ¶ 116.) Regarding to Iris’ Bitcoin miner equipment financing agreements with NYDIG, the

2022 20-F stated, “The NYDIG Agreement contains customary affirmative and negative covenants

applicable to the subsidiary borrower, but not to Iris Energy Limited.” (Id. ¶ 117.) Regarding Iris’

other Bitcoin miner equipment financing agreements, the 2022 20-F stated, “The Other Financing

Agreements include customary affirmative and negative covenants applicable to the subsidiary

borrowers, but not to Iris Energy Limited.” (Id. ¶ 118.)

Appended as exhibits to the 2022 20-F were signed certifications pursuant to the Sarbanes-

Oxley Act of 2002, wherein Defendants D. Roberts and W. Roberts certified that “the [2022 20-

F] fully complies with the requirements of Section 13(a) or 15(d) of the [Exchange Act]” and that

“the information contained in the [2022 20-F] fairly presents, in all material respects, the financial

condition and results of operations of the Company.” (Id. ¶ 119.)

i. September 13, 2022 Conference Call

On September 13, 2022, Defendant D. Roberts hosted a conference call with analysts to

discuss the Company’s Q4 2022 financial results. On the call, D. Roberts told analysts that Iris

was still profitable, even at the lower Bitcoin prices in the market. (Id. ¶ 120.) He stated,

For us, the optimal strategy is to liquidate daily, lock in those profits.

As you can see there, we’re mining Bitcoin at $8,000 a coin, locking

that profitability and then make a capital allocation decision with

that profitability left over. Today, even in the current market,

Bitcoin mining is profitable, incremental returns on CapEx are

profitable.

(Id.) He also said, “Yes, we’re still mining Bitcoin at $8,000 a coin, it’s still very good gross profit

margins, even at $20,000 Bitcoin” and that “[w]e’re building proprietary data centers, building out

energy infrastructure, locking up low-cost renewable energy. Yes, we’re monetizing that into

Bitcoin, but it’s a real asset base generating real cash flows.” (Id. ¶ 121.) D. Roberts also stated

that Iris had a competitive advantage due to its low electricity costs, stating: “the game is now

more about that large-scale energy data center infrastructure.” (Id. ¶ 122.) Roberts also told

analysts that the Company’s power costs were decreasing: “The additional revenue to BC Hydro

actually puts a downward pressure on that power price.” (Id.)

Plaintiffs assert that during the call, D. Roberts failed to disclose the ongoing problems

with the SPVs. (Id. ¶ 123.) Plaintiffs assert he misrepresented that Iris’ balance sheet was strong

and stated:

Again, we’ve got some hardware financing, but that is limited to

asset level. Again, potentially a key differentiator with other listed

firms. We have not given parent company guarantees. We do not

have cross defaults. We do not have cross collateralization. Those

financing are limited recourse specifically to the individual

computers and the SPVs they’re holding.

(Id.)

Plaintiffs assert that the September 13, 2022 Press Release, Form 20F, and Conference Call

were false and misleading because (1) they failed to disclose that the collateral pledged by Iris to

NYDIG under the SPV equipment financing agreements was not limited to the equipment itself,

but in fact extended to the Bitcoin mined by the SPVs and any proceeds from the sale of the

Bitcoin; and (2) they failed to disclose existing, known material problems with significantly

decreased cash flows from the SPVs. (Id. ¶ 125.) Plaintiffs further assert that the September 12,

2022 statements caused Iris’ stock to increase from $4.26 on September 13, 2022 to $4.48 on

September 14, 2022, an increase of 5.2%. (Id. ¶ 124.)

E. Stock Price Decline and Default on Obligations

On November 2, 2022, Iris issued a press release stating, among other things, that

“‘[c]ertain equipment (i.e., Bitcoin miners) owned by [Non-Recourse SPV 2 and Non-Recourse

SPV 3] currently produce insufficient cash flow to service their respective debt financing

obligations, and have a current market value well below the principal amount of the relevant loans’

and that ‘[r]estructuring discussions with the lender remain ongoing.’” (Id. ¶ 9.) Thereafter, “Iris’s

ordinary share price fell $0.51 per share, or 15.04%, to close at $2.88 per share on November 2,

2022—a nearly 90% decline from the Offering price.” (Id. ¶ 10.)

On November 4, 2022, Iris disclosed that the non-recourse SPVs received a notice from

their lender, which alleged the occurrence of an event of default and acceleration under the

equipment financing facilities (the “Acceleration Notice”). (Id. ¶ 11.) The Acceleration Notice

provided that the non-recourse SPVs failed to continue engaging in good faith restructuring

discussions pursuant to an agreement between the Non-Recourse SPVs and the lender. (Id.) The

Acceleration Notice stated that failure to engage in such good faith restructuring discussions was

an immediate event of default under each facility. (Id. ¶ 12.) The Acceleration Notice declared a

payment default for certain scheduled principal payments originally due October 25, 2022. (Id.)

Furthermore, the Acceleration Notice declared the entire principal amount of each facility, together

with accrued and unpaid interest, were immediately due and payable by each Non-Recourse SPV.

(Id.) A November 2022 Investor Presentation from Iris disclosed that the default of the SPVs

resulted in a material decrease of the Company’s monthly average operating hashrate to just 1,445

PH/s in November 2022 from 3,899 PH/s in October 2022 and a decrease in Bitcoin mined to just

151 from 448 in October. (Id. ¶ 147.)

By December 2022, Iris’ stock price had declined almost 92%. (Id. ¶ 13.) In a December

2022 Investor Presentation, Iris Energy told investors that “Recent market events have nothing to

do with Bitcoin.” (Id. ¶ 142 (emphasis in original).)

On January 20, 2023, the lender to the SPVs filed a petition with the British Columbia

Supreme Court primarily seeking the appointment of PwC as receiver over the assets and

undertakings of the non-recourse SPVs, in relation to their failures to make payments when due

under their respective equipment financing agreements. (Id. ¶ 141.) The court subsequently

appointed PwC as the receiver of the non-recourse SPVs on February 3, 2023. (Id.)

In a Form 6-K filed with the SEC on February 13, 2023 and signed by D. Roberts, Iris

disclosed that it recognized a loss of $15,209,000 for the period ending December 31, 2022, in

respect of receivables held by the non-recourse SPVs. (Id. ¶ 140.) Iris stated that “[t]he entire GST

and PST receivable balances held by the non-recourse SPVs are not expected to be recoverable by

the Group due to the appointment of a receiver to the non-recourse SPVs on 3 February 2023.”

(Id.) The Form 6-K also explained that the SPVs’ default:

(i) resulted in a material reduction in our operating capacity, (ii)

increased our electricity costs per Bitcoin mined as a result of higher

demand charges (i.e., fixed charges) per Bitcoin mined and (iii)

adversely impacted our operating metrics. In particular, with a lower

operating capacity, increased electricity costs per Bitcoin mined and

a decline in the price of Bitcoin over recent months, we have

experienced, and expect to continue to experience, a reduction in the

Group’s revenue and operating cash flows, resulting in net operating

losses.

(Id. ¶ 143.) “As of December 31, 2022, assets held by the Non-Recourse SPVs were recognized

as impaired in the Group consolidated financial statements to reflect their expected net realizable

value to the Group (i.e. to a value equal to the third-party debt outstanding in each of the Non-

Recourse SPVs).” (Id. ¶ 146.)

At the time of the First Amended Complaint’s filing, Iris’ ordinary shares traded at

approximately $3.21 per share. (Id. ¶ 149.)

F. The Present Motion

On June 6, 2023, Lead Plaintiffs Network Racing Pty Ltd., Nahi Beaini, LRJ

Superannuation Fund, and De Stoop Investments Pty Ltd. filed their First Amended Complaint.

(ECF 38.) Plaintiffs allege Defendants’ wrongful acts and omissions caused Plaintiffs and the class

significant loss and damages. (Id. ¶ 15.) Plaintiffs’ FAC asserts five counts: (1) violations of

Section 10(b) of the Exchange Act and Rule 10b-5 (against the Exchange Act Defendants) (FAC

¶¶ 170-77); (2) violations of Section 20(a) of the Exchange Act (against the Exchange Act

Individual Defendants) (id. ¶¶ 180-85); (3) violations of Section 11 of the Securities Act (against

the Securities Act Defendants) (id. ¶¶ 186-94); (4) violations of Section 12 of the Securities Act

(against the Securities Act Defendants) (id. ¶¶ 195-201); and (5) violations of Section 15 of the

Securities Act (against the Securities Act Individual Defendants) (id. ¶¶ 202-06). On August 4,

2023, all Defendants moved to dismiss. (ECF 47.)

II. LEGAL STANDARD

a. Rule 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) governs motions to dismiss for “failure to state a

claim upon which relief can be granted[.]” For a complaint to survive dismissal under the Rule, it

must contain sufficient factual matter to state a claim that is plausible on its face. Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim

is facially plausible “when the plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at

678. Although the plausibility standard “does not impose a probability requirement, it does require

a pleading to show more than a sheer possibility that a defendant has acted unlawfully.” Connelly

v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016) (internal quotation marks and citations

omitted). As a result, a plaintiff must “allege sufficient facts to raise a reasonable expectation that

discovery will uncover proof of [his] claims.” Id. at 789.

b. Rule 9(b)

Federal Rule of Civil Procedure 9(b) imposes additional pleading requirements.

“Independent of the standard applicable to Rule 12(b)(6) motions, Rule 9(b) imposes a heightened

pleading requirement of factual particularity with respect to allegations of fraud.” In re Rockefeller

Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir. 2002). Thus, pursuant to Rule 9(b), when

“alleging fraud or mistake, a party must state with particularity the circumstances constituting

fraud or mistake . . . [m]alice, intent, knowledge, and other conditions of a person’s mind may be

alleged generally.” Fed. R. Civ. P. 9(b). A party alleging fraud must therefore support its

allegations with factual details such as “the who, what, when, where and how of the events at

issue.” U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir.

2016). Accordingly, “[t]o satisfy the particularity standard, ‘the plaintiff must plead or allege the

date, time and place of the alleged fraud or otherwise inject precision or some measure of

substantiation into a fraud allegation.’” Feingold v. Graff, 516 F. App'x 223, 226 (3d Cir. 2013)

(citing Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007)). This heightened standard is

designed to “ensure that defendants are placed on notice of the precise misconduct with which they

are charged, and to safeguard defendants against spurious charges of fraud.” Craftmatic Sec. Litig.

v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989) (internal quotation marks omitted).

c. Private Securities Litigation Reform Act (“PSLRA”) Pleading Requirements

“To state a claim for securities fraud under Section 10(b) of the Exchange Act and Rule

10b-5, a plaintiff must allege: (1) a material misrepresentation or omission; (2) scienter; (3) a

connection between the misrepresentation or omission and the purchase or sale of a security; (4)

reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Ortiz

v. Canopy Growth Corp., 537 F. Supp. 3d 621, 639 (D.N.J. 2021) (citing City of Edinburgh

Council v. Pfizer, Inc., 754 F.3d 159, 167 (3d Cir. 2014)).

For plaintiffs asserting securities-fraud claims, the PSLRA imposes additional pleading

requirements. “The PSLRA established heightened pleading requirements for a plaintiff to meet

in order to plead a cause of action successfully in class actions alleging securities fraud.” Rahman

v. Kid Brands, Inc., 736 F.3d 237, 241 (3d Cir. 2013). The PSLRA “requires that a complaint state

with particularity both the facts constituting the alleged violation, and the facts evidencing scienter,

i.e., the defendant’s intention to deceive, manipulate, or defraud.” Id. at 241-42 (quoting Tellabs,

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007)) (internal quotations omitted). In

other words, plaintiffs bringing a claim involving an allegedly false or misleading statement must

“(1) ‘specify each statement alleged to have been misleading [and] the reason or reasons why the

statement is misleading,’ 15 U.S.C. § 78u-4(b)(1), and (2) ‘state with particularity facts giving rise

to a strong inference that the defendant acted with the required state of mind,’ § 78u-4(b)(2).”

Rahman, 736 F.3d at 242 (quoting Tellabs, 551 U.S. at 321).

Both provisions of the PSLRA pleading standard require that facts be pled “with

particularity,” echoing Federal Rule of Civil Procedure 9(b)’s requirements.3 Id. at 241 n.3.

3 Rule 9(b) provides that when “alleging fraud or mistake, a party must state with particularity the

circumstances constituting fraud or mistake . . . [m]alice, intent, knowledge, and other conditions of a person’s mind

may be alleged generally.” Fed. R. Civ. P. 9(b). Defendants do not separately move pursuant to Rule 9(b).

Although the “PSLRA replaced Fed. R. Civ. P. 9(b) as the applicable pleading standard in private

securities class actions,” Rule 9(b)’s particularity requirement “is comparable to and effectively

subsumed by the requirements” of the PSLRA. Id. This standard “requires plaintiffs to plead the

who, what, when, where and how: the first paragraph of any newspaper story.” Institutional Inv’rs

Grp. v. Avaya, Inc., 564 F.3d 242, 253 (3d Cir. 2009). Section 78u-4(b)(1) also adds the

requirement that where “an allegation regarding [a defendant’s] statement or omission is made on

information [or] belief,” plaintiffs must “state with particularity all facts on which that belief is

formed”—that is, they must describe the sources of information with particularity, including “the

who, what, when, where and how of the sources, as well as the who, what, when, where and how

of the information those sources convey.” Id.; see 15 U.S.C. § 78u-4(b)(1).

As to the second element, the PSLRA’s approach for pleading scienter sharply deviates

from Rule 9(b), which allows plaintiffs to plead the scienter element generally. Avaya, 564 F.3d

at 253. Under the PSLRA, the court must evaluate whether all the facts in the complaint as alleged,

taken collectively, give rise to a “strong inference of scienter” – not whether any individual

allegation viewed in isolation meets that standard. Tellabs, 551 U.S. at 323. In determining whether

the pleaded facts give rise to a strong inference of scienter, the court must “take into account

plausible opposing inferences.” Id. This involves a comparative inquiry that evaluates how likely

one conclusion is as compared to others, in light of the pleaded facts. Id. Thus, the court must

consider plausible, nonculpable explanations for the defendant’s conduct as well as inferences

favoring the plaintiff. Id. at 324. Although the inference that the defendant acted with scienter need

not be irrefutable, the inference must be more than merely “reasonable” or “permissible.” Id. A

complaint will survive only if a reasonable person would “deem the inference of scienter cogent

and at least as compelling as any opposing inference one could draw from the facts alleged.” Id.

III. ANALYSIS

A. Securities Act of 1933 Claims

a. Count III: Violations of Section 11 of the Securities Act (against the Securities

Act Defendants) (FAC ¶¶ 186-94) and Count IV: Violations of Section 12 of

the Securities Act (against the Securities Act Defendants) (FAC ¶¶ 195-201)

To state a claim under Section 11, Plaintiffs must allege that they purchased securities

pursuant to a materially false or misleading registration statement. In re Adams Golf, Inc. Sec.

Litig., 381 F.3d 267, 273 (3d Cir. 2004) (citing Herman & MacLean v. Huddleston, 459 U.S. 375,

382 (1983)). Specifically, Section 11 provides a right of action to purchasers “[i]n case any part of

the registration statement, when such part became effective, contained an untrue statement of a

material fact or omitted to state a material fact required to be stated therein or necessary to make

the statements therein not misleading . . . .” 15 U.S.C. § 77k(a). As the Supreme Court has

explained, Section 11 “was designed to assure compliance with the disclosure provisions of the

Act by imposing a stringent standard of liability on the parties who play a direct role in a registered

offering.” Herman & MacLean, 459 U.S. at 381-82 (footnote omitted). “A Section 11 claim may

be brought against the issuer of securities, its directors or partners, underwriters, and accountants

who prepared or certified the registration statement.” In re Suprema Specialties, Inc. Sec. Litig.,

438 F.3d 256, 269 (3d Cir. 2006) (citing Herman & MacLean, 459 U.S. at 382 n.13 (citing §

77k(a))). Section 11 is a “virtually absolute liability provision[], which do[es] not require plaintiffs

to allege that defendants possessed any scienter.” In re Adams Golf, 381 F.3d at 274 n.7. “If a

plaintiff purchased a security issued pursuant to a registration statement, he need only show a

material misstatement or omission to establish his prima facie case.” Herman & MacLean, 459

U.S. at 382.

To state a claim under Section 12(a)(2), plaintiffs must allege that they purchased securities

pursuant to a materially false or misleading “prospectus or oral communication.” In re Adams Golf,

Inc. Sec. Litig., 381 F.3d at 273. Specifically, a plaintiff must plausibly allege that a prospectus

“includes an untrue statement of a material fact or omits to state a material fact necessary in order

to make the statements, in the light of the circumstances under which they were made, not

misleading.” 15 U.S.C. § 77l(a)(2).

The basis for Plaintiffs’ Section 11 and 12(a)(2) claims are Offering Document statements

or omissions concerning Bitcoin mining equipment financing through the SPVs and Iris’ goodwill.

Defendants argue that Plaintiffs fail to identify any materially false or misleading statement or

actionable omission of material fact that could support claims under either Section 11 or 12(a)(2).

(Def. Br. at 14-27.)

i. Statements or Omissions Related to Bitcoin Mining Equipment Financing

Defendants assert that Plaintiffs fail to identify any materially false or misleading statement

or actionable omission of material fact related to equipment financing that could support Section

11 or 12(a)(2) claims. (Def. Br. at 14-23.) Specifically, Defendants point to the following

disclosure present in the Offering Documents, which discloses the equipment finance agreements

and details the debt owed:

We are party to equipment finance and security agreements,

denominated in US dollars, pursuant to which an equipment

financier has agreed to finance part of the purchase of various miners

that have been delivered to us or will be delivered to us. As of

September 30, 2021, the aggregate amount of the loan facilities was

$53.9 million, and the aggregate amount of funds borrowed under

these loans was $22.9 million. The loans carry an annual interest

rate of 12% and are to repaid through monthly payments of interest

and principal through September 2023. The agreements include

customary restrictions and outstanding borrowings are secured by

the financed mining units purchased with the loans. In connection

with one of the agreements, we issued the financier A$223.2

thousand in convertible notes that will mature on January 5, 2022,

unless earlier converted into Ordinary shares. In conjunction with

another agreement, we issued an amount of convertible notes

equivalent to approximately $2.4 million to the financier in

connection with the recent convertible note capital raise in October

2021.

(Def. Br. at 6 (quoting Prospectus and Registration Statement).) In their opposition, Plaintiffs

assert that Defendants’ statements regarding “counterparty risk” and “more sustainable cashflows”

resulting from Iris’ ownership of its mining equipment were misleading because Defendants

omitted key information about how the mining equipment was owned—specifically, that the

equipment was owned through non-recourse SPVs financed by NYDIG. (Opp. at 14-15 (citing

FAC ¶¶ 54-58).) Plaintiffs further assert that the statements regarding counterparty risk and more

sustainable cashflows were further rendered misleading by Defendants’ omission that the SPVs

were incapable of servicing their debt financing obligations, which subjected Iris to substantial

risk since Iris pledged both the mining equipment and the Bitcoin it mined as collateral. (Opp. at

15 (citing FAC ¶¶ 57-58).) In their reply, Defendants assert that the Offering Documents made

sufficient disclosures regarding the mining equipment ownership and do not “promise that the

SPVs would have cash flows sufficient to repay the loans.” (Reply at 5; see Def. Br. at 17-18.)

Defendants argue that nothing in the Offering Documents was misleading, that its disclosures in

the Offering Documents were sufficient, and it had no duty to disclose more than it already did.

(Def. Br. at 15-16.)

Courts must assess whether an issuer of securities had a duty to disclose a material4 fact

such that its omission made a statement misleading. In re Adams Golf, Inc. Sec. Litig., 381 F.3d at

277 (citing Zucker v. Quasha, 891 F. Supp. 1010, 1014 (D.N.J. 1995) (“To avoid committing

4 Materiality is ordinarily an issue left to the factfinder and is therefore not typically a matter for Rule 12(b)(6)

dismissal. In re Adams Golf, Inc. Sec. Litig., 381 F.3d at 274-75 (citing Weiner v. Quaker Oats Co., 129 F.3d 310, 317

(3d Cir. 1997) (“The emphasis on a fact-specific determination of materiality militates against a dismissal on the

pleadings.”)). “Only if the alleged misrepresentations or omissions are so obviously unimportant to an investor that

reasonable minds cannot differ on the question of materiality is it appropriate for the district court to rule that the

allegations are inactionable as a matter of law.” In re Adams Golf, Inc. Sec. Litig., 381 F.3d at 275 (quoting Shapiro

v. UJB Fin. Corp., 964 F.2d 272, 281, n.11 (3d Cir. 1992) (citing TSC Indus. v. Northway, Inc., 426 U.S. 438, 450

(1976))) (emphasis added).

misrepresentation, a defendant is not required to disclose all known information, but only

information that is ‘necessary to make other statements not misleading.’” (quoting Craftmatic Sec.

Litig. v. Kraftsow, 890 F.2d 628, 640 n.16 (3d Cir. 1989))). Here, the Court must assess whether

Iris had a duty to disclose that the Bitcoin mining equipment was owned through non-recourse

SPVs financed by NYDIG, that the SPVs were incapable of meeting their financial obligations,

and that these financial obligations subjected Iris to substantial risk because Iris pledged both the

mining equipment and Bitcoin mined as collateral to its debt obligations. To make out prima facie

violations of Sections 11 and 12(a)(2), plaintiffs must allege that an omitted material fact was

required to be included by the securities laws or that its absence rendered statements in the

prospectus misleading. In re Adams Golf, Inc. Sec. Litig., 381 F.3d at 277 (citing 15 U.S.C. §

77k(a) (referring to “an untrue statement of a material fact or omitted to state a material fact

required to be stated therein or necessary to make the statements therein not misleading”); 15

U.S.C. § 77l (referring to “an untrue statement of a material fact or omits to state a material fact

necessary in order to make the statements, in the light of the circumstances under which they were

made, not misleading”)).

As noted above, Plaintiffs allege that the Iris’ statements regarding its counterparty risk

and more sustainable cashflows were rendered false or misleading considering the omitted facts

regarding the SPVs’ role in financing the purchase of the mining equipment. Specifically, Plaintiffs

assert that the Prospectus represented that Iris owned its mining equipment, which provided Iris

with control over its assets and gave it “more sustainable cash flows” over competitors that leased

their equipment or utilized third-party hosting agreements. (FAC ¶ 55.) Specifically, the Offering

Documents stated that Iris has “ownership of our electrical infrastructure and data centers . . .

[which] provides us with security and operational control over our assets. Long-term asset

ownership also allows our business to benefit from more sustainable cash flows in comparison

with miners that rely upon third-party hosting services . . . .” (Id.) The Offering Documents also

stated that Iris was “both the owner and operator of our hardware infrastructure . . . .” (Id.) The

Offering Documents further stated that “[w]hile outsourcing infrastructure and operations and

maintenance to third-parties may result in near-term returns and scale, short-term contractual

arrangements may result in increased counterparty risk (e.g. potential non-performance, delays and

disputes) and renewal risk.” This ownership was subject to equipment finance and security

agreements, which the Offering Documents disclosed. Plaintiffs have failed to sufficiently plead

or explain why Defendants had a duty to disclose the information about the non-recourse SPVs

and financing through NYDIG when Defendants already disclosed that ownership was subject to

equipment finance and security agreements. Plaintiffs have failed to sufficiently plead or explain

why the omission of this information made the statements about counterparty risk and cashflow

misleading.

ii. Statements or Omissions Related to Goodwill

Defendants argue that the goodwill figure is an opinion and Plaintiffs fail to plead

materiality of the goodwill statement. (Def. Br. at 23-27.) Plaintiffs assert that the Offering

Documents were false and misleading because they overstated Iris’ goodwill and did not reflect

necessary impairment charges to the goodwill’s value associated with the SPVs, mining

equipment, and other Iris assets. (FAC ¶ 72.) In their opposition, Plaintiffs assert that the

statements regarding goodwill are not opinions. (Opp. at 23.)

The Second and Ninth Circuits have reasoned that statements regarding goodwill

valuations are statements of opinion rather than objective fact when they depend on management’s

application of judgment and subjective evaluation. City of Dearborn Heights Act 345 Police &

Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 613 (9th Cir. 2017) (“statements regarding

goodwill valuations are opinion statements because they ‘are inherently subjective and involve

management’s opinion regarding fair value.’”); Fait v. Regions Fin. Corp., 655 F.3d 105, 110 (2d

Cir. 2011) (“Estimates of goodwill depend on management’s determination of the ‘fair value’ of

the assets acquired and liabilities assumed, which are not matters of objective fact.”). See also

Ortiz v. Canopy Growth Corp., 537 F. Supp. 3d 621, 667 (D.N.J. 2021) (applying the reasoning

from City of Dearborn and Fait to find statements regarding valuation and inventory were

opinion); Behrmann v. Brandt, No. 19-772, 2020 U.S. Dist. LEXIS 136543, at *20 (D. Del. July

31, 2020) (“[G]oodwill estimates are opinion statements because they depend on management’s

determination of the fair value of the assets acquired and liabilities assumed, which are not matters

of objective fact and will vary depending on the particular methodology and assumptions used.”

(citation omitted)). Here, Defendants’ statements regarding goodwill valuations are opinions

because they depend on management’s determinations regarding value and impairment. (See, e.g.,

Ex. A at 181-82 (“[in assessing goodwill] Management determined that the Group’s carrying value

was supported by its recoverable amount and no impairment exists at the reporting date. In

forecasting cash flows over the four-year period, management has considered the key market

assumptions of the business as forecasted below[.]”) (emphasis added).)

As set forth by the Supreme Court in Omnicare, there are three scenarios in which an

opinion may be false or misleading: (i) a speaker’s stated opinion is insincere; (2) the stated opinion

contains an expressly embedded factual assertion that is untrue; and (3) the stated opinion

reasonably implies untrue facts and omits a qualifying statement regarding those facts. City of

Warren Police & Fire Ret. Sys. v. Prudential Fin., Inc., 70 F.4th 668, 684-85 (3d Cir. 2023) (citing

Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175, 184-89

(2015)). Here, the FAC does not allege that the statements regarding goodwill were insincere, are

embedded with untrue factual assertions, or imply untrue facts and omit qualifying statements

regarding those facts.

Because Plaintiffs have not established material misstatement or omission, Plaintiffs’

Securities Act claims (Counts III and IV) are DISMISSED without prejudice.

b. Count V: Violations of Section 15 of the Securities Act (against the Securities

Act Individual Defendants) (FAC ¶¶ 202-06)

Plaintiffs assert a Section 15 Securities Act claim against Defendants D. Roberts, W.

Roberts, Bartholomew, Guzowski, and Alfred. (FAC ¶¶ 202-06.) Section 15 “provides for joint

and several liability on the part of one who controls a violator of Section 11 or Section

12.” Pension Tr. Fund for Operating Eng’rs v. Mortg. Asset Securitization Transactions, Inc., 730

F.3d 263, 268 (3d Cir. 2013) (quoting In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256,

269, 284 (3d Cir. 2006)). To state a claim under Section 15, “the plaintiff must allege (1) a primary

violation of the federal securities laws by a controlled person or entity; (2) control of the primary

violator by the defendant; and (3) that the controlling person was in some meaningful way a

culpable participant in the primary violation.” Carmack v. Amaya Inc., 258 F. Supp. 3d 454, 466

(D.N.J. 2017) (quoting Dutton v. Harris Stratex Networks, Inc., 270 F.R.D. 171, 178 (D. Del.

2010)). Because Plaintiffs have not established a primary violation under Sections 11 and 12(a)(2),

Plaintiffs’ Section 15 claim (Count V) is DISMISSED without prejudice.

B. Exchange Act of 1934 Claims

a. Count I: Violations of Section 10(b) of the Exchange Act and Rule 10b-5

(against the Exchange Act Defendants) (FAC ¶¶ 170-77)

In Count I, Plaintiffs allege the Exchange Act Defendants violated Section 10(b) and Rule

10b-5. (FAC ¶¶ 170-77.) “The private right of action under Section 10(b) and Rule 10b-5 . . .

creates liability for false or misleading statements or omissions of material fact that affect trading

on the secondary market.” In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1417. To state a

securities fraud claim pursuant to Section 10(b) and Rule 10b-5, a plaintiff “must allege (1) a

material misrepresentation or omission, (2) scienter, (3) a connection between the

misrepresentation or omission and the purchase or sale of a security, (4) reliance upon the

misrepresentation or omission, (5) economic loss, and (6) loss causation.” City of Edinburgh

Council v. Pfizer, Inc., 754 F.3d 159, 167 (3d Cir. 2014). In their motion to dismiss, Defendants

assert that Plaintiffs have failed to plead facts that (1) show Defendants’ challenged statements

were false or misleading or (2) give rise to the PSLRA’s requisite strong inference of scienter.

(Def. Br. at 28.) Plaintiffs argue that their allegations are sufficient. (See, e.g. Opp. at 34.)

i. Material Misrepresentations or Omissions

Defendants argue that “Section 10(b) and Rule 10b-5 do not create an affirmative duty to

disclose any and all material information.” (Def. Br. at 29 (quoting City of Edinburgh Council,

754 F.3d at 167).) In their opposition, Plaintiffs specify several statements upon which they base

their Section 10(b) and Rule 10b-5 omissions claims. (Opp. at 25-34.)

Defendants are correct that Section 10(b) and Rule 10b-5 do not create an affirmative duty

to disclose all material information. Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011).

However, disclosure may be required in certain circumstances. “A duty to disclose under federal

securities laws may arise when a statute requires disclosure, insider trading occurs, or there is an

inaccurate, incomplete, or misleading prior disclosure.” City of Edinburgh Council, 754 F.3d at

173-74 (citing Oran v. Stafford, 226 F.3d 275, 285-86 (3d Cir. 2000)). Specifically, “[d]isclosure

is required . . . only when necessary ‘to make . . . statements made, in the light of the circumstances

under which they were made, not misleading.’” Matrixx, 563 U.S. at 44 (quoting 17 C.F.R. §

240.10b-5(b)).5 Plaintiffs’ FAC states that Defendants omitted material facts necessary to make

statements made, considering the circumstances under which they were made, not misleading.

(FAC ¶ 172.) The Court addresses Plaintiffs’ allegations in turn.

1. February 9, 2022 Form 6-K, Presentation, and Press Release

Plaintiffs first identify statements in the February 9, 2022 Form 6-K and a presentation

attached to the Form 6-K as false and misleading. Because Plaintiffs do not allege a duty to disclose

pursuant to a statute or insider trading, the Court addresses whether Defendants have a duty to

disclose because their initial disclosures were inaccurate, incomplete, or misleading. Plaintiffs

assert that the following statements from the Form 6-K and accompanying presentation were

misleading because they omitted material information:

• Iris was well-positioned to increase growth and profits because it had the second-most

miners of any company with “15 EH/s computing power secured.” (FAC ¶¶ 75-76.)

• Iris had a competitive advantage due to its ownership of data mining equipment, whereas

competitors used third-party hosting services that exposed them to “counterparty risk.” (Id.

¶ 77.)

• Iris told investors that it expected revenues of $695 million by early 2023 and profits of

$578 million. (Id. ¶ 78.) 6

• Iris disclosed that it entered into equipment finance and security agreements to finance the

purchase of various mining hardware. (Id. ¶ 81.)

Plaintiffs argue these statements were misleading because they: (1) failed to identify

NYDIG as the lender or disclose Defendant Alfred’s affiliation with NYDIG; (2) made no

disclosure of the use of the SPVs; (3) made no disclosure about the collateral pledged by Iris for

the loans, including that Iris pledged Bitcoin mined by the SPVs as collateral, and (4) failed to

5 Indeed, “companies can control what they have to disclose under these provisions by controlling what they

say to the market.” Matrixx, 563 U.S. at 45. “Silence, absent a duty to disclose, is not misleading under Rule 10b-5.”

City of Edinburgh Council, 754 F.3d at 174 (quoting Basic Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988)).

6 The FAC alleges that these statements were false and inaccurate as was proven a year later when, on

February 15, 2023, the Company reported a total operating capacity of just 1.7 EH/s (compared to 10 EH/s it told

investors it would deliver by such time) and a net loss after income taxed of $144 million for Q2 2023 (instead of a

profit as represented in the 2Q22 6-K). (FAC ¶ 79.)

disclose a lack of sufficient corporate formalities between Iris and the SPVs, which allowed the

lender to pursue Iris’ assets in the event of a default by the SPVs. (Opp. at 26 (citing FAC ¶ 82).)

The Third Circuit has explained that “[l]iability may exist under Rule 10b-5 for misleading

or untrue statements, but not for statements that are simply incomplete.” Winer Family Tr. v.

Queen, 503 F.3d 319, 330 (3d Cir. 2007) (citing Brody v. Transitional Hospitals Corp., 280 F.3d

997, 1006 (9th Cir. 2002) (“Rule 10b-5 . . . prohibit[s] only misleading and untrue statements, not

statements that are incomplete . . . . Often, a statement will not mislead even if it is incomplete or

does not include all relevant facts) (emphasis in original and internal citation omitted); Backman

v. Polaroid Corp., 910 F.2d 10, 16 (1st Cir. 1990) (en banc) (“[The duty to disclose rule] does not

mean that by revealing one fact about a product, one must reveal all others that, too, would be

interesting, market-wise, but means only such others, if any, that are needed so that what was

revealed would not be so ‘incomplete as to mislead.’”) (quoting SEC v. Texas Gulf Sulfur Co., 401

F.2d 833, 862 (2d. Cir. 1968))). Here, Plaintiffs have failed to sufficiently plead how a lack of

information about the MFEAs, the relationship between NYDIG and Alfred, a lack of corporate

formalities, or the nature of the collateral makes the statements above misleading or untrue.

Furthermore, Defendants argue that the statement that Iris expected revenues of $695

million by early 2023 and profits of $578 million (FAC ¶ 78) was a forward-looking statement

protected by the PSLRA Safe Harbor for forward-looking statements. Defendants make this same

argument about D. Roberts’ statement that Iris “is on track to be one of the largest listed Bitcoin

miners with 15 EH/s3 of hardware secured[.]” (Id. ¶ 74.)

A statement is “forward-looking” if it contains a “projection of revenues, income [],

earnings [] per share, capital expenditures, dividends, capital structure, or other financial items,”

or statements of “future economic performance, including any such statement contained in a

discussion and analysis of financial condition by the management.” Avaya, 564 F.3d at 255 (citing

15 U.S.C. § 78u–5(i)(1)(A)-(C)). The PSLRA Safe Harbor “immunizes from liability any forward-

looking statement, provided that: the statement is identified as such and accompanied by

meaningful cautionary language; or is immaterial; or the plaintiff fails to show the statement was

made with actual knowledge of its falsehood.” Avaya, 564 F.3d at 254 (citing 15 U.S.C. § 78u-

5(c)). In addition, the Safe Harbor applies to material misstatements and omissions. 15 U.S.C. §

78u-5(c).

To fall within the PSLRA Safe Harbor, Defendants must have included “meaningful

cautionary language” that is “extensive and specific.” Avaya, 564 F.3d at 254, 256 (internal

quotations omitted). “To suffice, the cautionary statements must be substantive and tailored to the

specific future projections, estimates or opinions in the prospectus which the plaintiffs challenge.”

Id. (quoting GSC Partners CDO Fund v. Washington, 368 F.3d 228, 243 n.3 (3d Cir. 2004)). A

vague or boilerplate warning that “merely warns the reader that the investment has risks” will not

suffice. Id. at 256. Finally, “[c]autionary statements disclosed in SEC filings may be incorporated

by reference; they ‘do not have to be in the same document as the forward-looking statements.’”

In re Aetna, Inc. Sec. Litig., 617 F.3d 272, 282 (3d Cir. 2010) (quoting In re Merck & Co. Sec.

Litig., 432 F.3d 261, 273 n.11 (3d Cir. 2005)). Oral forward-looking statements must also be

accompanied with a cautionary statement or appropriate reference to a written cautionary

statement. In re Anadigics, Inc., Sec. Litig., No. 08-5572, 2011 WL 4594845, at *18 (D.N.J. Sept.

30, 2011).

Here, the February 9, 2022 Press Release and Form 6-K included meaningful cautionary

language:

These forward-looking statements are based on management’s

current expectations and beliefs. These statements are neither

promises nor guarantees, but involve known and unknown risks,

uncertainties and other important factors that may cause Iris

Energy’s actual results, performance or achievements to be

materially different from any future results, performance or

achievements expressed or implied by the forward-looking

statements, including, but not limited to: Iris Energy’s limited

operating history with operating losses; electricity outage, limitation

of electricity supply or increase in electricity costs; long term outage

or limitation of the internet connection at Iris Energy’s sites; Iris

Energy's evolving business model and strategy; Iris Energy’s ability

to successfully manage its growth; Iris Energy's ability to raise

additional capital; competition; [B]itcoin prices; risks related to

health pandemics including those of COVID-19; changes in

regulation of digital assets; and other important factors discussed

under the caption “Risk Factors” in Iris Energy’s final prospectus

filed pursuant to Rule 424(b)(4) with the SEC on November 18,

2021, as such factors may be updated from time to time in its other

filings with the SEC, accessible on the SEC’s website at

www.sec.gov and the Investors Relations section of Iris Energy’s

website at httrJs://investors.irisenergY..CO.

(ECF 47-4, Ex. C at 8.) This meaningful cautionary language expressly incorporated risks

identified in Iris’ Prospectus. Accordingly, the above-identified statements from the February 9,

2022 Press Release and 6-K are protected by the PSLRA safe harbor.

2. March 28, 2022 Press Release

On March 28, 2022, Iris issued a press release announcing the closing of an additional $71

million equipment financing facility with NYDIG. (FAC ¶ 87.) That press release highlighted that

this was the “[t]hird facility secured with NYDIG, further cementing [a] long-term partnership”;

that the facility was “[s]ecured by 19,800 Bitmain S19j Pro miners”; and that “~10 EH/s of the

Company’s total stock of contracted miners remain unencumbered, providing substantial balance

sheet flexibility to secure additional non-dilutive funding in due course.” (Id.) The press release

quoted D. Roberts, who stated:

We are delighted to again partner with an industry leader such as

NYDIG who have been a long-standing supporter of our business.

This is our third equipment financing facility together and we look

forward to formalizing additional loan facilities as miners continue

to be delivered and installed. This transaction further demonstrates

the capital structure benefits in having a strong balance sheet and

owning and controlling our own infrastructure.

With substantial equity raised to date, meaningful operational

cashflow and a 15 EH/s installation schedule which remains on

track, we are pursuing a number of other sources of non-dilutive

funding to continue the Company’s rapid growth trajectory and

delivery of shareholder value, noting that we as management

continue to hold approximately one quarter of the shares on issue.

(Id. ¶ 88.) Plaintiffs assert that these press release statements were false and misleading because

they failed to disclose: (i) that Iris’ MFEAs with NYDIG included provisions pledging the Bitcoin

mined (and proceeds from the sale of Bitcoin) as collateral, not just the mining equipment; (ii) the

SPVs were not capable of servicing the debt, allegedly jeopardizing Iris’ cash flows and

operations; and (iii) NYDIG, the lender that was given a security interest, was allegedly a related

party because Iris Director Michael Alfred had a significant equity interest in NYDIG, which he

had acquired when he sold his business Digital Assets Data, Inc. to NYDIG. (Id. ¶¶ 90-91.)

“Liability may exist under Rule 10b-5 for misleading or untrue statements, but not for

statements that are simply incomplete.” Winer Family Tr., 503 F.3d at 330 (citing Brody, 280 F.3d

at 1006; Backman, 910 F.2d at 16). Plaintiffs do not explain how a lack of information about the

MFEAs or the relationship between NYDIG and Alfred within the press release makes these

specific press release statements misleading or untrue. Further, Plaintiffs have not provided

sufficient allegations demonstrating that Defendants knew the SPVs were incapable of servicing

the debt owed. Accordingly, Plaintiffs fail to establish a misstatement or omission from the March

28, 2022 Press Release.

3. May 11, 2022 Form 6-K

During and after May 2022, the price of Bitcoin began to drop. (FAC ¶ 93.) On May 11,