On April 4, 2024, the First Department issued a decision in Camelot Event Driven Fund v. Morgan Stanley & Co., LLC, 2024 NY Slip Op. 01866, holding that a Securities Act claim can be based on truthful but misleadingly incomplete disclosures, explaining:
Although no statement in the Offering materials was literally false, literal accuracy is not enough: a defendant must as well desist from misleading investors by saying one thing and holding back another. The test as to whether an omission makes a statement materially misleading is whether the omitted facts would significantly alter the total mix of information made available to a reasonable investor.
The Offering materials included the following statements:
In order to facilitate the offering of the Class B common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class B common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. . . . As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to 3,000,000 additional shares of Class B common stock at the public offering price listed on the cover page of this prospectus supplement, less underwriting discounts and commissions.
Our directors, our executive officers and National Amusements, Inc., our controlling stockholder, have entered into lock- up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons, with limited exceptions, for a period of 45 days lifer the date of this prospectus supplement, may not, without the prior written consent of Morgan Stanley & Co. LLC, offer, pledge, sell, contract to sell . . . or otherwise transfer or dispose of, directly or indirectly, any shares of Class B common stock . . . .
The statement that the underwriters may engage in transactions that affect the price of the stock could be found misleading if the Conflicted Defendants already intended to do so, especially given that the transactions would certainly not raise or maintain” the price of the stock. At this procedural stage, the lock-up and allotment agreements also could be found misleading, in that that they arguably suggest that defendants did not intend to perform significantly greater transactions. A reasonable investor could find it significant that while Viacom was offering $3 billion of equities, the Conflicted Defendants planned to sell their own holdings of Viacom, which amounted to much more.
(Internal quotations and citations omitted).