On May 2, 2022, Justice Borrok of the New York County Commercial Division issued a decision in City of Warwick Mun. Empls. Pension Fund v. Restaurant Brands Intl. Inc., 2022 NY Slip Op. 50337(U), holding that purchasers in secondary public offerings had standing to assert Securities Act claims, explaining:
The defendants’ claim that the plaintiffs have failed to allege standing under Section 12 is equally unavailing. To wit, the defendants argue that because the Underwriters borrowed existing shares from unnamed and undisclosed shareholders and took the new shares and traded those shares for the already issued shares that they “borrowed”, the plaintiffs cannot have standing to bring these claims because they did not purchase “new shares.” The argument fails.
This Court addressed a similar argument in Mahar v General Electric (Mahar v. General Electric, 65 Misc 3d 1121, 1129 [Sup Ct, NY County 2019], affd 188 AD3d 534 [1st Dept 2020]). The plaintiffs in Mahar had participated in the GE Direct plan which allowed investors to purchase shares of General Electric Company (GE) stock through a plan administrator. The plan administrator could acquire shares from GE directly or from the open market. Thus, the defendants in that case argued, among other things, that the plaintiffs could not establish standing. This Court disagreed:
The fact that a security may be historic (i.e., previously issued pursuant to a prior registration) does not forever immunize it from being subject to a Section 11 claim if the security is subsequently reacquired by the issuer, or for the benefit of the issuer, and then offered in connection with allegedly materially misleading statements. Under the circumstances, the relevant issue is one of time — i.e., whether the plaintiffs purchased securities contemporaneously with, and traceable to, the allegedly materially misleading Registration Documents. As the plaintiffs allege that they did, the plaintiffs have sufficiently alleged Section 11 standing to survive a motion to dismiss. Put another way, the plaintiffs allege that they purchased stock pursuant to GE’s Plan and based on the allegedly misleading Registration Documents. The fact that a Plan Administrator was involved is of no moment. It is the same as if GE had bought the stock itself and reissued the stock pursuant to the Registration Documents.
The Plan Administrator purchasing for the plaintiffs’ Plan account (i.e., and not for its own account) necessarily means that it should be disregarded as a separate entity for purposes of Section 12 standing analysis. As the plaintiffs correctly argue ‘GE is liable as a statutory seller because it hired an agent, the Plan administrator, to act on its behalf and sell shares of common stock on its behalf It is beyond cavil that, here, GE successfully solicitated the purchase of a security, motivated at least in part by a desire to serve its own financial interests’ and, thus, even if direct title in the securities passed to the plaintiffs through the Plan Administrator, GE qualifies as a statutory seller. The plaintiffs here are not remote purchasers trying to recover against their seller’s seller. To hold otherwise would amount to putting form over substance twisting the statutory seller requirement beyond all logic.
Like in Maher, the ruse described by the defendants here must be disregarded for Section 12 standing analysis because this scheme effectively (1) passed title, or other interest in the security, to the buyer for value, or (2) successfully solicited the purchase of security, motivated at least in part by a desire to serve his own financial interests or those of the security owner. To wit, the Underwriters who were employed and paid by the issuer acquired securities at the behest of the issuer and 3G Defendants to facilitate the offering of securities to these plaintiffs in connection with the SPOs. Under the undisputed circumstances, it is the same as if the issuer acquired the stock as treasury stock and re-offered it. As such, the shares that the plaintiffs purchased were, as they allege, shares purchased pursuant to and traceable to the August SPO from the Underwriters. This is sufficient to establish standing at this stage of the proceeding. Holding otherwise would be to ignore the transaction itself.
Finally, the defendants’ additional argument that because the plaintiffs purchased shares from the Underwriter, the Individual Defendants and 3G Defendants cannot be considered statutory sellers also fails. The definition of a statutory seller includes a party who solicits the purchase of securities. The well-pled complaint alleges that the Individual Defendants and the 3G Defendants marketed the shares in connection with the SPOs, actively solicited investors to purchase shares at the SPOs and profited from the sale of the shares. Thus, the plaintiffs sufficiently state a Section 12(a)(2).
(Internal quotations and citations omitted).