Brief Fact Summary. Shareholders (Plaintiff) brought an action for securities fraud, claiming that Time Warner (Defendant)Â has made substantial distortions and exclusions in the public statements Time Warner issued in connection with various methods it implemented as a way to lessen its debt.
Synopsis of Rule of Law. Whenever undisclosed information makes public statements substantially deceiving, not only when that information totally contradicts the public statements, a duty to reveal is present.
Issue. Does undisclosed information that makes public statements substantially deceiving, not only when that information totally contradicts the public statements, create a duty to reveal?
Held. (Newman, C.J.) Yes. Undisclosed information that makes public statements substantially deceiving, not only when that information totally contradicts the public statements, create a duty to reveal. None of the assertions made by Time Warner establishes a positive distortion, although the accusations of nondisclosure are more severe. Whether contemplation of the alternatemethodestablishes substantial information and whether the nondisclosure makes the initial revelations deceitful remainqueries for the trier of fact. An omission is criminal under the securities lawsonly when the corporation is obligated to a duty to reveal the omitted truths.Â As in this case, when a corporation chasing a particular business goal declares a proposed tactic for achieving it, the corporation may be compelled to reveal other methods which are under aggressive and severe deliberation. The accusations or nondisclosure and of a motive theory representing scienter are enough to withstand a motion to dismiss. Reversed and remanded.
Discussion. Scienter is a requisite factor of every Rule 10b-5 action. A plaintiff may plead scienter lacking direct information of a defendant’s state of mind by claiming facts proving a motive to commit fraud and had chance to do so by claiming facts establishing coincidental confirmation of irresponsible or cognizant conduct. Here, the district court determined that the complaint fell short under both methods. Repercussions of any rulings that support the dismissal of a Rule 10b-5 suit, there will be some occasion for unremedied fraud, while the repercussions of all rulings that allow a Rule 10b-5 suit to advancepast a motion to dismiss, there will be some occasion to extricate an unjustified settlement.