By Bernard Vaughan
NEW YORK (Reuters) - A federal judge on Monday dismissed a lawsuit accusing AOL Inc and some of its executives of fraud for repurchasing 14.8 million shares in 2011 without disclosing that the company would sell a $1 billion portfolio of patents to Microsoft Corp months later.
Plaintiffs in the case said they suffered significant losses when they sold their shares ahead of the patent deal, after which AOL's stock surged 43 percent in a single day.
Knowing the deal with Microsoft was imminent allowed AOL, its CEO Tim Armstrong and former CFO Arthur Minson to effectively buy their company's stock at a discount price, plaintiffs said.
But "the complaint's conspiracy theory is mere speculation," U.S. District Judge Denise Cote said in an 18-page opinion.
The lawsuit failed to provide an adequate example in which AOL executives made a material misstatement or omission prior to the announcement of the patent sale on April 9, 2012, Cote said.
It was well known in the market that AOL's patent portfolio might be extremely valuable, Cote wrote. The company disclosed in numerous public filings that its patents were among its most valuable assets, and an activist investor in AOL, Starboard Value LP, had publicly speculated that the portfolio could be worth as much as $1 billion, Cote said.
The deal also came at a time in the market for such patents was heating up. Nortel, for example, sold a patent portfolio for $4.5 billion in June 2011, Cote noted.
Press reports from the time and AOL disclosures that it was working to sell the patents "render implausible any suggestion that the public was not aware that AOL possessed an extremely valuable patent portfolio," Cote wrote.
The judge also did not accept the plaintiffs' claim that an auction for the patents was essentially a sham, and that AOL knew long before April 9 that it would sell them to Microsoft, Cote said.
"The remaining allegations in the complaint simply provide no basis for an assertion that AOL and Microsoft reached a secret deal for the sale of the patents months before the auction was conducted," the judge wrote.
Representatives for the plaintiffs and AOL were not immediately available for comment. The lead plaintiff is Barbara Keeling, who the complaint said sold AOL stock during the class period and before the deal.
The case is In Re AOL, Inc Repurchase Offer Litigation, U.S. District Court, Southern District of New York, No. 12-cv-03497
(Reporting by Bernard Vaughan; Editing by Bob Burgdorfer)