Westlaw Topical Highlights: Securities, March 26, 2015

March 26, 2015

To match analysis CHINA-IPO/Topical Highlights for Securities provides summaries of significant federal and state judicial decisions and legislative and administrative activities affecting Securities law. A Westlaw subscription is required to access the documents linked from this page.

Fraud: Registration statement can be misleading if issuer omits material facts about its inquiry into or knowledge concerning stated opinion—Supreme Court Decision Omnicare, Inc. v. Laborers Dist. Council Const. Indust. Pension Fund, 2015 WL 1291916 (U.S.) Vacating a decision of the Sixth Circuit and remanding for consideration under the proper legal standard, the United States Supreme Court has held, 2015 WL 1291916, that if a registration statement for the sale of securities omits material facts about the issuer’s inquiry into or knowledge concerning a statement of opinion, and if those facts conflict with what a reasonable investor would take from the statement itself, the issuer is liable under § 11 of the Securities Act of 1933, 15 U.S.C.A. § 77k(a).

But a statement of opinion is not misleading simply because the issuer knows, but fails to disclose, some fact cutting the other way.

The case concerned the public offering of common stock by an issuer that was the nation’s largest provider of pharmacy services for residents of nursing homes. In its registration statement, the issuer wrote: “We believe our contract arrangements with other healthcare providers, our pharmaceutical suppliers and our pharmacy practices are in compliance with applicable federal and state laws,” and “We believe that our contracts with pharmaceutical manufacturers are legally and economically valid arrangements that bring value to the healthcare system and the patients that we serve.”

These statements were accompanied by certain caveats. After pension funds purchased the issuer’s stock in the public offering, the federal government filed lawsuits alleging that the issuer had received payments from drug manufacturers that violated anti-kickback laws. The funds then brought suit against the issuer under § 11.

Writing for a majority of the Court, Justice Kagan said that the Sixth Circuit improperly conflated, into a single standard, two grounds for liability under § 11: a registration statement contains an “untrue statement of a material fact,” or it “omit[s] to state a material fact … necessary to make the statements therein not misleading.”

The Sixth Circuit, in reversing the district court’s dismissal of the pension funds’ claim for damages, held that the pension funds could state a claim under § 11 by alleging only that the issuer’s stated belief was objectively false, without any need to allege that anyone at the issuer disbelieved the opinion when it was expressed.

Justice Scalia filed an opinion concurring in part and concurring in the judgment. Justice Thomas filed an opinion concurring in the judgment. (Vacating and remanding Indiana State Dist. Council of Laborers and HOD Carriers Pension and Welfare Fund v. Omnicare, Inc., 719 F.3d 498 (C.A.6–Ky. 2013).) 2015 WL 1291916. (The full-text of the rest of the Topical Highlights is available within Westlaw Next, subscription required).

Removal: State court suit involved covered securities as required for preclusion under SLUSA.  Marchak v. JPMorgan Chase & Co. 2015 WL 500486 (E.D.N.Y.)

Industry Regulation: Lifetime resort memberships were not subject to timeshare fraud protection under Texas statute.  Reed v. Big Water Resort, LLC 2015 WL 535567 (D.S.C.)