In its recently-released Report on the Municipal Securities Market, the Securities and Exchange Commission asked Congress to increase the SEC’s authority to regulate the municipal securities market, which it described as “decentralized . . . illiquid and opaque.” While the SEC has brought a handful of enforcement actions against issuers of municipal securities based on allegedly-misleading offering materials, most recently against the state of New Jersey in 2010 and the city of San Diego in 2006, it has done so rarely because municipal securities are exempted from most of the provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Read More
Relying on a lesser-known U.S. Securities and Exchange Commission rule, the Southern District of New York dismissed over forty underwriter and director defendants from a securities action against General Electric Co. on April 18, 2012. Shareholders alleged that GE made false statements in connection with a $12 billion secondary stock offering in 2008, including misrepresentations about its ability to sell commercial paper. GE, which was mostly financed by 30-day commercial paper, encountered difficulties in funding its operations after the collapse of Lehman Brothers in September 2008.
District Judge Denise Cote ruled that older statements incorporated by reference into the offering documents were modified and superseded by subsequent statements under SEC Rule 412, and that statements made by GE in its Forms 10-K between 2004 and 2007, expressing confidence in its commercial paper position, could not be relied upon to state a Securities Act claim. Citing SEC Rule 412, Judge Cote found that the 2008 offering’s prospectus supplement warned of potentially impaired access to the commercial paper market, and thus “directly modif[ied] and replace[d] the earlier statements” of GE. Judge Cote also rejected lead plaintiff’s argument that the newer statements were merely standardized “boilerplate.”
The ruling modified a January 2012 opinion from District Judge Richard Holwell in one of his last opinions before retiring from the bench. Upon reassignment of the matter Judge Cote granted defendants’ pending motions for reconsideration of the January opinion with respect to all surviving claims under the Securities Act and Exchange Act. Judge Cote’s ruling did not dispose of the entire action, keeping intact the Exchange Act claims against GE and its chief financial officer for alleged misstatements about the quality of the company’s loan portfolio.
In re: General Electric Co. Securities Litigation, case number 1:09-cv-01951, United States District Court for the Southern District of New York.