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(Article from Securities Law Alert, July/August 2020)

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On June 22, 2020, the Seventh Circuit affirmed the dismissal of a securities fraud action alleging that a company violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 in connection with a tender offer by preliminarily announcing the number of shares it would be purchasing and the purchase price, and then correcting those numbers in a press release after trading closed. Walleye Trading v. Abbvie, 962 F.3d 975 (7th Cir. 2020) (Easterbrook, J.). Because the company expressly cautioned that the preliminary numbers were “subject to change,” the Seventh Circuit held that the preliminary numbers could not be misleading as a matter of law.

The Seventh Circuit found the plaintiff’s Section 10(b) claims “perplexing.” The court questioned, “How can an announcement, explicitly subject to change, become false or misleading when it is indeed changed?” The court held that “[i]t does not: [the company] did not make a false or misleading statement. It accurately reported [the] preliminary numbers” provided by the financial firm the company retained to receive all offers. The court also rejected the plaintiff’s contention that defendants’ failure to verify the accuracy of the financial firm’s preliminary numbers supported an inference of scienter. The court held that “neither the statute nor any regulation requires an issuer to verify someone else’s data before reporting them.”

As to the plaintiff’s Section 14(e) claim, the Seventh Circuit explained that only the SEC and “private persons who can show that they relied on false or misleading statements filed with the [SEC] can recover damages” under Section 14(e). The court noted that the plaintiff did not even “try to show that [the company’s] statements were filed with the SEC or that [the plaintiff] relied on them.” Instead, the plaintiff simply “assume[d] that § 14(e) gives it a private right of action to collect damages for press releases issued after a tender offer closes.” The court found that “the end of the tender offer placed [the plaintiff] outside the zone of interests protected by § 14” because “when [the company] announced the results of the Dutch auction, there was no longer any way for shareholders to participate in it.” The court concluded that “an investor cannot use §14(e) to challenge a statement made after a tender offer has closed.”