Opinion ID: 478360
Heading Depth: 2
Heading Rank: 3

Heading: The Misstatements by OFS

Text: 66 Mayer's remaining federal securities law claims, based on the two misstatements in OFS's May 7 Letter, were also, in light of the record, properly dismissed as a matter of law. These misrepresentations could not support a claim under Sec. 11 of the 1933 Act since they were not made in a registration statement. See 15 U.S.C. Sec. 77k(a). Her claims under Secs. 10(b) and 12(2) were dismissible for other reasons. 67 The claims based on OFS's misrepresentation as to the role of Bache were properly dismissed on the basis of the principles discussed in Part II.B. above. Defendants could not be held liable to Mayer under either Sec. 10(b) or Sec. 12(2) if Mayer had knowledge of the fact misrepresented. Here, the record shows that although the May 7 Letter incorrectly stated that Bache would serve as underwriter of the Integrated shares, the subsequent Prospectus Supplement correctly identified Bache as Dealer Manager for the Exchange Offer. Mayer testified to having read the Prospectus Supplement and to understanding that a dealer manager was only an agent whereas an underwriter takes a certain responsibility in the stock he is promoting. Accordingly, Mayer's knowledge and understanding of Bache's true role required the dismissal of her Secs. 10(b) and 12(2) claims concerning the mischaracterization of Bache as an underwriter. 68 Mayer's claims based on the other misrepresentation in the May 7 Letter, i.e., the indication that according to the conventional wisdom the price of the Integrated shares would zestily rebound after an initial depressed opening, were dismissible on different grounds: The claims against OFS were dismissible for lack of any evidence of scienter, and the claims against Integrated were dismissible for lack of any evidence that Integrated had any role in making the misstatement. 69 It is well established that in order to prove a Sec. 10(b) claim, the plaintiff must prove the defendant's scienter. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Similarly, when, as is true here, the person who made the misrepresentation is not the immediate and direct seller of the securities, the imposition of liability on him under Sec. 12(2) as a participant, aider and abettor, or coconspirator also requires proof of scienter. See Lanza v. Drexel & Co., 479 F.2d 1277, 1298 (2d Cir.1973) (en banc) (Sec. 12(2) requires privity or, in the absence of privity, scienter) (footnotes omitted); Klein v. Computer Devices, Inc., 602 F.Supp. 837, 841 (S.D.N.Y.1985); Hitchcock v. deBruyne, 377 F.Supp. 1403, 1405-06 (D. Conn.1974) (Newman, J.); L. Loss, Fundamentals of Securities Regulation 1184-85 (1983); see also Aid Auto Stores, Inc. v. Cannon, 525 F.2d 468, 470-71 (2d Cir.1975) (per curiam). Scienter requires at least knowing misconduct, which may, of course, be proven as a matter of inference from circumstantial evidence. See Wechsler v. Steinberg, 733 F.2d 1054, 1058 (2d Cir.1984). Summary judgment is appropriate when the nonmoving party has come forward with no evidence from which a reasonable factfinder could find that the defendant had the requisite state of mind. See Anderson v. Liberty Lobby, Inc., --- U.S. ----, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986). 70 These principles warranted the summary dismissal of Mayer's Secs. 10(b) and 12(2) claims against OFS. The record contains no evidence indicating that OFS engaged in any intentional or knowing misconduct in suggesting that the price of Integrated shares would rebound. Indeed, all of the indications are to the contrary. Thus, the May 7 Letter was accompanied by the Prospectus which emphasized the arbitrariness of the $10 figure and the potential uncertainties regarding the market's pricing of the Integrated shares. More importantly, the Fortune magazine article that OFS was expressly purporting to characterize also accompanied the May 7 Letter. Given Mayer's failure to come forward with any evidence from which scienter could be inferred, summary judgment in favor of OFS concerning the zestily rebound statement was appropriate. 71 Nor, on this record, is there a valid Sec. 12(2) claim against Integrated based on the zestily rebound statement. Integrated was neither the author nor the sender of the May 7 Letter in which the statement was made, and no evidence was proffered that OFS, which did not enter into an agreement with Integrated until three months thereafter, was acting as Integrated's agent or coconspirator in making the statement. There is no evidence that Integrated was aware of the May 7 Letter. Certainly, all of Integrated's statements expressly disclaimed any prediction as to the eventual market price of the Integrated shares. Accordingly, Integrated cannot be said to have made or to have had reason to know of the misrepresentation.