Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, December 2, 2007

Recent 9th Circuit Opinion Deals with Misrepresentation, Materiality Issues

The Ninth Circuit recently discussed the requirement of a misstatement of material fact under 33 Act Section 12(a)(2) in the context of a merger between a public corporation and a private corporation, Miller v. Thane Int'l, 2007 WL 4147327, 9th Cir. 11/26/07.  The proxy statement sent to shareholders of the acquired corporation represented that the acquiring corporation expects to have its shares approved for listing on Nasdaq and that it had already received Nasdaq approval (subject to meeting $5 bid requirement).  Both statements were literally true.  Because the company's investment bankers advised the company to wait to list the shares until completion of an anticipated secondary offering (which never took place), the shares in fact were never listed on Nasdaq.  First, the 9th Circuit said the district court committed "clear error" when it found that the acquiring corporation did not make a misrepresentation, since statements literally true on their face may be misleading when considered in context.  Second, the appeals court held that the district court committed error when it found that, even if there was a misrepresentation, it was not material, since the market price did not drop even after it was clear that the shares were not trading on Nasdaq.  The appeals court said it was error to consider the movement of stock prices that did not trade in an efficient market. 

However, plaintiffs have a remaining obstacle -- loss causation.  The defendants argued that since the district court found that the market did not react to the fact that the shares were not listed, plaintiffs could not establish loss causation.  The Ninth Circuit remanded to the district court for consideration of this issue.

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You can access a PDF of the opinion at the Ninth Circuit website. The URL for the PDF is$file/0556043.pdf?openelement

Ninth Circuit published opinions are posted daily as individual PDFs at

Posted by: Greg May | Dec 3, 2007 5:01:30 PM

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