Negative Causation Defense Wins the Day
A financial institution, its officers and directors, and the offering underwriters were sued by an individual representing the purchasers of its Series 5 offering of American Depository Shares. The plaintiff alleged the securities were issued based on materially false and misleading offering materials. The company succeeded in dismissing the case on summary judgment with the court finding it had no duty to disclose the allegedly omitted information. The court also ruled the company had established a negative causation defense (the alleged omissions did not cause the claimed losses). The Second Circuit affirmed rebuking the plaintiff’s arguments the company covered up its exposure to billions in risky assets and didn’t disclose an ongoing directive regarding its equity ratio.