Opinion ID: 77664
Heading Depth: 2
Heading Rank: 2

Heading: Wyer's previous bankruptcy

Text: 90 The SEC also argues that it was materially misleading for Merchant to omit mention of Wyer's personal bankruptcy. The district court did not specifically make a finding on the materiality of the failure to disclose the bankruptcy, but implicitly found that it was not material in concluding across the board that Merchant had made no material misrepresentations or omissions. We hold that this too was clear error. 91 We have previously held that a failure to disclose the bankruptcy of a similar predecessor company is a material omission. Carriba Air, 681 F.2d at 1323-24. Merchant attempts to distinguish Carriba Air on its face, arguing that Wyer's personal bankruptcy was related to a direct marketing business, entirely distinct from the debt purchasing business that Merchant was organizing. 92 We conclude that, under the facts in the record, a reasonable investor would have been interested in Wyer's previous personal bankruptcy, and that it was thus materially misleading to omit the information. Wyer and Merchant put his experience in issue by touting, in great detail, Wyer's business experience. Wyer and Beasley represented that they had mature, diverse business experience; that Wyer had 27 years of experience in the sales and marketing of financial services products as a consultant to financial institutions involved in consumer lending and collections and as President and CEO of [Wyer Creative Communications], an integrated direct marketing company focused on the financial services industry. Wyer's very recent personal bankruptcy (in 2000) resulted from the failure of this business of which he was CEO, and which he touted in the offering materials as related and as relevant experience. Information about Wyer's qualifications took on added significance because Merchant was marketing the interests to people with little experience in the debt purchasing industry, who would be relying on Wyer's expertise to generate their returns. Knowledge of Wyer's previous bankruptcy clearly would have been helpful to a reasonable investor assessing the quality and extent of this experience. See Carriba Air, 681 F.2d at 1323-24; Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 98-99 (2d Cir.2001) (misrepresentation of principal manager's qualifications, including omission of personal bankruptcy, would be material if proven); SEC v. Enterprises Solutions, Inc., 142 F.Supp.2d 561, 575-76 (S.D.N.Y. 2001) (materially misleading to fail to disclose bankruptcy of promoter's prior business); see also Gill v. Three Dimension Sys., Inc., 87 F.Supp.2d 1278, 1282 n. 2 (M.D.Fla.2000) (misrepresentation of substantial business experience of promoter supported 10b-5 claim); cf. 17 C.F.R. § 229.401(f)(1) (instructing registrant to disclose federal bankruptcy petitions of director or executive officer in previous five years where material to an evaluation of the ability or integrity of such director or officer). It was therefore a material omission. 21