NEW YORK (LN) — The Second Circuit on Tuesday affirmed the dismissal of securities fraud claims against Perion Network Ltd. and four of its current and former officers, but remanded the case with instructions to clarify that the plaintiffs’ Israeli securities law claims were dismissed without prejudice rather than with prejudice.
The panel affirmed the dismissal substantially for the reasons stated by U.S. District Judge Valerie E. Caproni in the Southern District of New York, according to the summary order. The district court had dismissed the amended complaint on June 27, 2025, finding that lead plaintiff Menora Mivtachim Insurance Ltd. and affiliated pension funds failed to adequately plead falsity for most of the alleged misrepresentations and failed to properly plead scienter against the officer defendants.
Menora Mivtachim alleged that Perion, which distributes the Bing search engine to third-party publishers and shares in advertising revenue, misrepresented the quality of its search traffic to both Microsoft and shareholders. According to the amended complaint, Microsoft required that low-quality searches—including traffic from fake users, clickbait, and less valuable geographic regions—be excluded Perion provided. The plaintiffs alleged Perion actually derived substantial business from low-quality publishers generating junk traffic, and that once Microsoft discovered the true nature of Perion’s business, it excluded a number of Perion’s publishers, reducing projected revenue from the agreement to less than 5% of Perion’s revenue half of 2024.
The district court dismissed claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 20(a) control-person liability claims. The court found that while two statements by defendant Doron Gerstel were potentially actionable, the plaintiffs failed to adequately plead scienter based on motive and opportunity or strong circumstantial evidence of conscious misbehavior or recklessness. The Section 20(a) claim failed because there was no underlying Section 10(b) violation against Perion.
Having dismissed the federal claims over which it had original jurisdiction, the district court declined to exercise supplemental jurisdiction over the Israeli securities law claims and entered judgment with prejudice. The plaintiffs declined Judge Caproni’s invitation to amend the complaint and instead requested a final judgment with prejudice so they could appeal.
The Second Circuit affirmed the dismissal but remanded with instructions to amend the judgment to clarify that the Israeli securities law claims were dismissed without prejudice.