Opinion ID: 2982178
Heading Depth: 3
Heading Rank: 3

Heading: “Subject to Government Regulations”

Text: Plaintiffs’ third argument in support of their Rule 10b-5 claim is premised on the statement in the PPM that the Bank’s operations are “subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations.”5 On its face, this is obviously an accurate statement – banks are indeed subject to a plethora of laws and regulations. Nonetheless, plaintiffs argue that this statement was “designed to mislead” them because defendants did not disclose that they were violating laws and regulations and were under investigation by the OFIR. 5 The district court correctly noted that this statement from the PPM was not identified in the First Amended Complaint as an allegedly false or misleading statement upon which plaintiffs premised their claims. Instead, plaintiffs appear to have first zeroed in on the statement in their response in opposition to the motion to dismiss. The district court nonetheless addressed this theory, so we do likewise on appeal. 13 No 13-1444 Dailey v. Medlock The district court properly rejected this theory. First, the above statement merely says that the Bank is “subject” to laws and regulations; it does not state that the Bank believes it is in compliance with such laws. Even if it did, this Circuit’s precedent holds that a generic claim of legal compliance, absent any specifics, does not form the basis for a misrepresentation actionable under Rule 10b-5 and does not require the disclosure of allegedly illegal activities. See Omnicare, 583 F.3d at 945–47; see also Kushner v. Beverly Enters., Inc., 317 F.3d 820, 826–27 (8th Cir. 2003) (statement that company was in “substantial compliance” with Medicare regulations did not support Rule 10b-5 claim where plaintiffs failed to allege particular facts demonstrating that defendants then knew of scheme which violated those regulations). Moreover, while plaintiffs reference the OFIR investigation, they do not plead what, if any, laws or regulations defendants violated such that a statement of legal compliance (again, which defendants did not make) would have been false or misleading. Cf. Bridgestone, 399 F.3d at 672–73 (finding statement regarding safety of company’s tires to be actionable where company had actual knowledge of internal tests regarding tire failures). For these reasons, the district court properly held that these allegations did not sufficiently plead a statement actionable under Rule 10b-5.