Brief Fact Summary. Buyers (Plaintiff) of Citizens Utilities Company (Defendant) common stock claimed Citizens provided substantial inaccuracies by deceitfully acknowledging profits while lacking appropriate admission.Â
Synopsis of Rule of Law. For a court to depend on only a solitary statistic or percentage standard to decide the relevance of a purported inaccuracy is erroneous.Â
Issue. Is a court depending on only a solitary statistic or percentage to decide relevance of a purported inaccuracy erroneous?
Held. (Katzmann, J.) Yes. A court depending on only a solitary statistic or percentage to decide relevance of a purported inaccuracy is erroneous. With regard to financial statements, the SEC has stated that a multitude of qualitative aspects may result in inaccuracies of measurably minute quantities to be relevant, where the inaccuracy hides an alteration in income or a failure to sustain specialists’ estimations for the company. This is very influential when determining the relevance of a purported inaccuracy and other court of appeals cases follow this method as well.
With the SEC as amicus, the buyers argued that the district court needed to take into account the impact of the purported distortions on all inaccuracies in the statements for all significant time frames, not just the entire year. The buyers are right due to the fact that relevance is decided based on situations present when the purported inaccuracies transpired.Â In this case, applying the aforementioned rules, the buyers state the inaccuracies occur in the First and Second Quarter Forms 10-Qs of 1996, and related press releases.Â Viewing by quarter, the inaccuracies involve a significant percentage of pre and post-tax net revenue, between 8 â€“ 17.7%. Therefore it cannot be said that these figures are irrelevant as a matter of law. The buyers also claim that the HTCC fees from 1995 were fraudulently stockpiled until the following year to hide Citizens failure to match specialists’ projections. In this light, it cannot be stated that no reasonable investor would have contemplated such distortions to be material or to have changed the complete mix of information affecting their investment choice, so the buyers’ complaint purported relevant inaccuracies. Reversed.
Discussion. For reasons of pragmatism, authorities implicated with securities transactions apply a general rule in circumstances like this, that there is an assumption that information that is reason behinda 10% increase in stock price movement, or all of an issuers assets, total sales, net income and the like is relevant while information accounting for 5% or less is assumed to not be. Measurable relevance is only one way to determine relevance and it must also be taken into account in particular cases, but it all boils down to all material conditions must be contemplated, irrespective of completelymeasurablevalues.