This is an extract of our Materiality Determination document, which we sell as part of our Securities Regulations (Duke Cox) Outlines collection written by the top tier of Duke University School Of Law students.
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a. Introduction i. TSC industries: An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote
1. It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available ii. Some disclosure items, while large in the absolute, become immaterial relative to the size of the firm b. Truth on the Market i. What defense does issuer have under SS11?
1. None, except to argue that the omission/misstatement was not material ii. Truth on the market: Can't be a material false representation if everyone understands that these are not reliable representations based on the information on the market
1. E.g. industry practice, analyst's reports c. Puffery and Statements of Opinion i. Puffery = statements that are not really believable
1. Statements tend to be general, optimistic, not specific
2. Puffery is not actionable a. Mere sales puffer is not actionable ?it's expected ii. Everybody knows that someone trying to sell something is going to look and talk on the bright side. You don't sell a product by bad mouthing it
1. The heart of a reasonable investor does not begin to flutter when a firm announces that some project or process is proceeding smoothly, and so the announcement will not drive up the price of the firm's shares to an unsustainable level a. Where puffing is the order of the day, literal truth can be profoundly misleading iii. An opinion is material, but is it a fact?
1. Securities laws talk about misrepresentation of fact
2. Normally opinion statements are not actionable unless there's objective evidence available to the person issuing the opinion that is inconsistent with the opinion. Virginia bank case.
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