567 F.2d 209
SYNOPSIS: Appeal by plaintiff in a derivative action under the Securities Exchange Act § 10(b) and the Securities Exchange Commission's Rule 10b-5, from an order of the District Court for the Southern District of New York dismissing plaintiff's amended complaint for failure to state a claim.
OVERVIEW: Plaintiff stockholder brought a derivative action against defendant corporations. The complaint alleged that a contract was formed among defendants which violated the Securities Exchange Act § 10(b) and the Securities Exchange Commission's Rule 10b-5. Plaintiff stockholder amended his complaint and alleged that defendants engaged in a conspiracy to cause plaintiff corporation to raise funds by a public offering, and then used both the proceeds of the offering and the plaintiff corporation's assets for defendants' benefit. Defendants' motions to dismiss were granted and the stockholder appealed.
On appeal, the court held that the stockholder was entitled to further amend his complaint.
If he amended his complaint, it would allege that there was deception of plaintiff corporation, because it was influenced by a shareholder to engage in transactions, which were misleadingly disclosed by defendants and which were adverse to plaintiff corporation's interests. The case was reversed and remanded for further proceedings, including amendment of the complaint.
OUTCOME: The court reversed the lower court's judgment and remanded the case to permit plaintiff stockholder to amend his complaint.
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