This month, we discuss Hutchison v. Deutsche Bank Securities Inc.,1 in which the U.S. Court of Appeals for the Second Circuit clarified when misstatements and omissions in a company’s registration statement will be considered “material” for purposes of prosecuting a securities fraud claim under §§11, 12(a)(2) and 15 of the Securities Act of 1933.2 Hutchison reconciles two recent, and seemingly inconsistent, Second Circuit decisions addressing the materiality requirement. The Second Circuit’s decision, written by Chief Judge Dennis Jacobs and joined by Circuit Judge Debra Ann Livingston and District Judge Jed S. Rakoff (sitting by designation), reaffirms that materiality is a fact-based inquiry and that matters that may be immaterial to a company’s overall business nevertheless may be material for purposes of the federal securities laws in certain circumstances. In reaching its decision, the Second Circuit affirmed a district court ruling dismissing a securities class action pursuant to Federal Rule of Civil Procedure 12(b)(6) for failing to allege adequately that certain misstatements or omissions in a company’s IPO registration statement were “material” to investors.
Background
The Securities Act contains a number of provisions that impose liability for misrepresentations in a registration statement in connection with a securities offering. Section 11 of the Securities Act provides securities purchasers a private right of action against the issuer or seller of those securities for making misstatements or omissions of material fact in a registration statement filed with the SEC.3 Section 12(a)(2) imposes liability on the issuer or seller of securities if the securities were sold using a prospectus that contained a material misstatement or omission.4
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