Brief Fact Summary. Respondents, Max Levinson et al., held shares in Petitioner Corporation, Basic Inc. Respondents brought this action after misleading statements concerning a potential merger induced them to sell their shares at a depressed price.
Synopsis of Rule of Law. Misleading statements during merger discussions will be material under Rule 10b-5 if the misstatements would have changed the view of the total information by a reasonable investor.
Issue. The issue is whether the misleading statements regarding ongoing merger discussions were material enough to alter the decision of a reasonable investor.
Held. The court determined that determining whether misleading statements or omissions were material under Rule 10b-5 would require a fact-based assessment. The court did not adopt Petitioner’s “agreement-in-principle” test that would have considered only misstatements after an agreement was made in principle. The court did not think that the probability of a failed merger outweighed the importance of providing the information to the investor. The court instead took a fact-based approach, reasoning that the probability would be weighed against the magnitude of the facts. In this case, a merger has a high magnitude on investor decisions and therefore the probability of a successful merger does not have to be as absolute as more trivial topics. The misstatements would still need to be material.
Who would knowingly roll the dice in a crooked crap game.View Full Point of Law