Ganino v. Citizens Util. Co. case brief

Ganino v. Citizens Util. Co. case brief summary
228 F.3d 154 (2000)

CASE SYNOPSIS

Appellants sought review of the judgment of the United States District Court for the District of Connecticut, which dismissed appellants' complaint under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C.S. §§ 78j(b), 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, for failure to state a claim.

CASE FACTS
Plaintiffs, who had acquired stock in defendant corporation, filed an action asserting violations of § 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C.S. §§ 78j(b), and corresponding Rule 10b-5, 17 C.F.R. § 240.10b-5 against defendants corporation and senior officers, and violations of § 20(a) of the Exchange Act, 15 U.S.C.S. § 78t(a), against defendant senior officers as controlling persons. Plaintiffs alleged that defendants improperly recognized financial support fees as income without disclosure, thereby fraudulently inflating the stock price. The lower court dismissed the action for failure to state a claim.

DISCUSSION

• The court reversed, holding that the alleged misrepresentations were not immaterial as a matter of law. 
• The lower court should not have relied on a single percentage benchmark to determine materiality. 
• The lack of share price movement following the release of corrective information was not conclusive evidence of immateriality. 
• The case was remanded for the lower court to apply the proper standards concerning materiality and scienter.

CONCLUSION

Judgment was reversed in part, and the case was remanded, because in dismissing the case the lower court improperly relied on a single percentage benchmark to conclude that the alleged misrepresentations were immaterial as a matter of law.

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Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials