Unlike in poker where a player actively conceals his hand, the issuer of a proxy statement is required to put all his cards on the table face-up.
Campbell vs. Transgenomic, Inc., No. 18-2198 (8th Cir., 3/1/19).
This class action followed the merger of Transgenomic and Precipio, Inc., into post-merger Precipio. Plaintiff alleged Transgenomic and its former president issued a false and materially misleading proxy statement that failed to give shareholders accurate information about post-merger Precipio’s value. Plaintiff alleged the proxy statement was misleading because it omitted post-merger’s Precipio’s projected net income/loss (which the Transgenomic board had reviewed before issuing the proxy), gross profit projections, and expenses. Plaintiff also alleged that revenue tables in the proxy were mislabeled and caused shareholders to believe post-merger Precipio was significantly more valuable than it was. Defendants moved to dismiss for failure to state a claim, arguing that the cited omissions were not materially misleading and other information in the proxy statement would lead a reasonable investor to conclude that the revenue tables referred to post-merger Precipio. The district court granted the motion.
Conducting a de novo review, the Court reverses, finding the issues related to the materiality of the omissions and labels should be determined by the trier of fact. The Court notes that Section 14(a) of the Securities Exchange Act was intended to ensure that proxies would be solicited with an accurate explanation to the shareholders of material facts relating to the request for their votes. The Court finds that the omission from the proxy of post-merger Precipio’s projected net income/loss, gross profit projections, and expenses prevented shareholders from independently calculating Precipio’s projected net income/loss. Continuing, the Court states Precipio’s projected net income/loss is not trivial information; rather, it is among the most valuable figures in determining the fairness of an acquisition and the materiality of the omissions should not have been decided as a matter of law. The Court reaches the same conclusion on the revenue table labels, finding whether a reasonable investor would correctly decipher the information in the revenue tables based on other information in the proxy statement is a question for the trier of fact who is uniquely competent to assess the inferences a reasonable investor would draw from a given set of facts. Finally, the Court finds Plaintiff’s control person claims sufficient to withstand 12(b)(6) dismissal because Plaintiff sufficiently pled a primary violation and that Transgenomic’s former president actually exercised control over the firm’s general operations and had the power to control the specific acts and omissions on which the alleged primary violation was predicated.
(SOLA Ref. No. 2019-18-04)
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