Cengage Advantage Books: Business Law Today, The Essentials 10th Edition by Roger LeRoy Miller

تمرين 6

Litwin v. Blackstone Group, LP
FACTS Blackstone Group, LP, manages investments. Its Corporate Private Equity Division accounts for nearly 40 percent of the assets under the company's management. In preparation for an initial public offering (IPO), Blackstone filed a registration statement with the Securities and Exchange Commission (SEC). At the time, Blackstone's investments included FGIC Corporation-a company that insured investments in subprime mortgages-and Freescale Semiconductor, Inc., which made wireless 3G chipsets for cell phones.
Before the IPO, FGIC's mortgage insurance experienced problems, and Freescale lost an exclusive contract with Motorola, Inc. (its largest customer). Consequently, both FGIC and Freescale began to generate substantial losses for Blackstone. Blackstone's registration statement did not mention the impact on its revenue of the investments in FGIC and Freescale. Martin Litwin and others who invested in the IPO filed a suit against Blackstone and its officers, alleging material omissions from the statement. Blackstone filed a motion to dismiss, which the court granted. The plaintiffs appealed.
ISSUE Was the fact that Blackstone had recently suffered substantial losses on two of its investments sufficient proof of material information that should have been disclosed in its registration statement?
DECISION Yes. The federal appellate court vacated the lower court's dismissal and remanded the case. The plaintiffs had provided sufficient allegations that Blackstone had omitted material information that it was required to disclose under securities law for the case to go to trial.
REASON Information is material if a reasonable investor would consider it significant in making an investment decision. A complaint can be dismissed on the ground that an omission is not material only if it would be "so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question." In this case, the information concerned the extent to which known events and trends could reasonably be expected to affect Blackstone's investments and revenue. The plaintiffs alleged that Blackstone should have disclosed this information. In particular, a reasonable investor would want to know the expected effect on the corporate private equity sector's future revenue. Thus "the alleged... omissions relating to FGIC and Freescale were plausibly material."
CRITICAL THINKING-Legal Consideration Litwin alleged that Blackstone had negligently omitted material information from the registration statement. What will he and the others have to show to prove their case?