Allen Ferrell is Harvey Greenfield Professor of Securities Law at Harvard Law School and Andrew H. Roper is Lecturer in Law at Stanford Law School and Executive Vice President with Compass Lexecon. This post is based on a forthcoming article by Professors Ferrell and Roper. Related research from the Program on Corporate Governance includes Rethinking Basic by Lucian Bebchuk and Allen Ferrell (discussed on the Forum here).
In a recent article entitled Price Impact, Materiality, and Halliburton II, Drew Roper and I discuss various themes and issues that have arisen in the lower court rulings applying the Supreme Court’s ruling in Halliburton v. Erica John Fund, Inc., 134 S. Ct. 2398 (2014) (“Halliburton II”). The Supreme Court’s decision in this important case reaffirmed the availability of the fraud-on-the-market presumption of “reliance” for purposes of a Rule 10b-5 class certification. At the same time, the Court held that defendants could rebut the presumption if they could provide “direct evidence” that the alleged misrepresentations did not in fact impact the price of the security (i.e., a lack of price impact).
We first identify three general themes that emerge from these decisions. First, when addressing confirmatory misrepresentations—alleged misrepresentations by a defendant that falsely confirm existing market expectations—some courts have concluded that a lack of a change in the security’s price at the time of the misrepresentation does not rule out a potential price impact associated with the alleged misrepresentation. For instance, in McIntire v. China MediaExpress Holdings, Inc., 38 F. Supp. 3d 415, 433 (S.D.N.Y. 2014), defendants argued that there was no statistically significant price increase when the misrepresentations at issue were made. The court found that this evidence was insufficient to rebut the Basic Inc. presumption because a “material misstatement can impact a stock’s value … by improperly maintaining the existing stock price.” This ruling raises the question concerning the scope of a “maintenance” theory of price impact.
Private Equity Portfolio Company IPOs and SEC Review: What to Expect
More from: Benjamin Pedersen, Paul Rodel, Debevoise & Plimpton
Paul M. Rodel is a partner and Benjamin R. Pedersen is an associate in the New York office of Debevoise & Plimpton LLP. This post is based on a Debevoise & Plimpton publication by Mr. Rodel and Mr. Pedersen.
Private-equity (“PE”) sponsored issuers are estimated to have represented nearly a quarter of all US-issuer IPOs in 2015, with that proportion being even higher in prior years. The relationship of PE sponsor to IPO issuer presents a core group of issues and a short list of recurring themes in the SEC review and comment process. [1] For certain of these issues, the SEC staff has issued substantially identical comments to multiple PE-backed issuers, suggesting that they have developed models for reviewing PE-backed IPOs. In advance of an initial IPO registration statement filing, and when structuring pre- and post-IPO relationships, PE sponsors and their counsel should consider these trending comments and likely areas of SEC scrutiny in order to avoid potential IPO disclosure difficulties and to guide the drafting of IPO registration statement disclosure.
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