In Stadnick v. Vivint Solar, Inc., 2017 WL 2661597 (2d Cir. June 21, 2017), the United States Court of Appeals for the Second Circuit affirmed the dismissal of claims for violations of Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, arising out of Vivint Solar, Inc.’s (“Vivint”) 2014 initial public offering (“IPO”). Plaintiffs, citing Shaw v. Digital Equipment Corp., 83 F.3d 1194 (1st Cir. 1996), alleged that Vivint was obligated to disclose in its registration statement financial information for the quarter ending one day before the IPO because the company’s performance in that quarter constituted an “extreme departure” from previous performance, even though Securities & Exchange Commission (“SEC”) Regulation S-X, 17 C.F.R. § 210.3-12(a), (g), requires a registrant to update financial statements only if they are more than 135 days old from the effective date of the IPO. The Second Circuit declined to adopt the First Circuit’s “extreme departure” test, and instead followed its own “long-standing test for assessing the materiality of an omission of interim financial information . . . set forth in DeMaria v. Andersen,” 318 F.3d 170 (2d Cir. 2003), to hold that a reasonable investor would not view the omission of the quarterly financial information at issue as significantly altering the “total mix” of information made available. This decision reflects a split in the Circuits regarding the duty to disclose interim financial information in IPO registration statements.
Continue Reading Second Circuit Rejects First Circuit’s “Extreme Departure” Test for Assessing Materiality of an Alleged Omission of Interim Financial Information From Registration Statement