On March 28, 2025, Judge Pamela K. Chen of the U.S. District Court for the Eastern District of New York denied, in its entirety, the defendants’ motion to dismiss in
In re Arqit Quantum Inc. Securities Litigation, a putative class action in which Wolf Popper LLP serves as Court-appointed lead counsel. Judge Chen rejected all of defendants’ arguments and upheld all of the claims in the Amended Complaint.
As alleged in the Amended Complaint, Arqit Quantum falsely claimed to have created technology and a protocol to make communications “quantum safe,” or safe from attack by a quantum computer. Arqit Quantum’s technology and protocol involved two pieces—software and satellites. As Arqit acknowledged, there is a known “‘key distribution’ problem” in the cybersecurity industry because while “computationally secure” symmetric keys can be created, “to date there has been no secure way to create and distribute those keys electronically.” Arqit claimed to solve “all known problems” with its flagship software program, QuantumCloud, and its patented encryption algorithm and quantum protocol ARQ19, through which Arqit would deliver random numbers to users, who would use QuantumCloud software to create identical encryption keys at separate locations using separate devices, allowing them to communicate and transfer data securely through Arqit’s QuantumCloud platform. While Arqit started by transmitting the random numbers terrestrially, Arqit touted that its soon-to-be-launched quantum satellites would more securely deliver those numbers.
The Amended Complaint alleges that in connection with Arqit Quantum’s merger with Centricus Acquisition Corp. and throughout the September 7, 2021 through December 13, 2022 Class Period, defendants misled the public and investors that, among other things: (a) Arqit had “pioneered a unique quantum encryption technology which makes the communications links of any networked device secure against current and future forms of cyber-attack – even an attack from a quantum computer;” (b) Arqit’s technology and software “has been launched live to customers” and is “being sold to and used by customers today;” (c) QuantumCloud, as designed to include the use of satellites, would create encryption keys “that are low cost,” “in infinite volumes at minimal cost,” and was “easily scalable,” including that Arqit itself was “capable of hyper scaling” its operations; (d) QuantumCloud “solves all previously known problems of quantum key distribution;” and (e) Arqit Quantum had a “backlog of $130 million of binding revenue contracts…where the revenues will definitely be delivered.”
The Amended Complaint alleges that the truth was revealed through two disclosures. First, on April 18, 2022, The Wall Street Journal published a story entitled “
British Encryption Startup Overstates Its Prospects, Former Staff and Others Say.” According to The Wall Street Journal, among other things, (a) Arqit had “given investors an overly optimistic view of its future revenue and the readiness and workability of its signature encryption system;” (b) Arqit’s chief revenue officer had resigned in April 2021 “after raising concerns with [Arqit’s CEO] that [the CEO] was overstating contracts and giving unrealistic revenue projections to potential investors;” (c) “British cybersecurity officials questioned the viability of Arqit’s proposed approach to encryption technology in a high-level evaluation they privately shared with the company in the summer of 2020;” (d) when Arqit Quantum stock started trading in September 2021, “its signature product was an early-stage prototype unable to encrypt anything in practical use,” “[n]o commercial customer was using Arqit [Quantum]’s encryption system with live data,” “the system couldn’t meaningfully use any of the common internet protocols required to do nearly anything online,” and “its revenue consisted of a handful of government grants and small research contracts;” (e) “[s]everal clients the company lists—including a number of British government agencies—are simply giving Arqit research grants, nonbinding memorandums of understanding or research agreements that come with no funding, not contracts for its encryption product;” and (f) “The encryption technology the company hinges on—a system to protect against next-generation quantum computers—might never apply beyond niche uses, numerous people inside and outside the company warned, unless there were a major overhaul of internet protocols” and “[t]he encryption system—with or without its satellite components—depends on the broad adoption of new protocols and standards for telecommunications, cloud computing and internet services that currently aren’t widely supported.” On Monday August 18, 2022, Arqit Quantum ordinary shares fell $2.57 per share, or 17%, and Arqit Quantum warrants fell $1.4479 per warrant, or 37.6%.
On December 14, 2022, Arqit Quantum disclosed that it was cooperating with an SEC investigation into the merger between Arqit Quantum and Centricus, and that Arqit Quantum had significantly altered its technology strategy and core product, QuantumCloud, to abandon quantum satellite technology completely. Thereafter, Arqit Quantum ordinary shares fell $1.10 per share, or 17.6%, and Arqit Quantum warrants fell $0.418 per warrant, or 34.8%.
Judge Chen concluded that the statements in The Wall Street Journal article were “sufficiently particular and detailed to indicate their reliability,” as were the statements of various confidential witnesses secured by Wolf Popper.
Concerning the plaintiffs’ allegations that certain defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, Judge Chen concluded that (a) plaintiffs had standing to assert the claims; (b) the claims were subject to the notice pleading standards of Federal Rule of Civil Procedure 8(a), and not the more stringent particularity pleading standards of Rule 9(b); and (c) plaintiffs properly alleged that the Registration Statement and Prospectus for Arqit Quantum’s issuance of securities in connection with its merger with Centricus contained materially false or misleading statements. Judge Chen also concluded that others public statements made by individual defendants David Williams (co-founder and CEO of Arqit Limited, Chairman of the Board of Directors of Arqit Quantum, and CEO of Arqit Quantum) and Garth Ritchie (CEO and director of Centricus, and director of Arqit Quantum) in connection with the merger were actionable under Section 12(a)(2) and that plaintiffs had properly alleged that Williams and Ritchie could be liable for those statements because they “actively solicited the exchange of Centricus securities for Arqit Quantum securities for their own financial benefit.”
Concerning plaintiffs’ allegations that certain defendants violated Sections 10(b) and 20(a) of the Exchange Act of 1934, and SEC Rule 10b-5, Judge Chen concluded that plaintiffs properly established “sufficient facts to support an inference that [those defendants] knew that at least some of the statements they made in 2021 about Arqit’s encryption technology were false;” and that the revelation of the false and misleading statements cased the price of Arqit securities to decline. Judge Chen also concluded that plaintiffs properly alleged that certain defendants violated Section 14(a) and 20(a) of the Exchange Act and Rule 14d-9 by making materially false and misleading statements in the proxy statement recommending the Arqit-Centricus merger.
The case is
In re: Arqit Quantum Inc. Securities Litigation, No. 1:22-cv-02604-PKC-MMH (E.D.N.Y.).