Warning: Cannot modify header information - headers already sent by (output started at /home/content/13/9102513/html/index.php:2) in /home/content/13/9102513/html/wp-content/plugins/wassup/wassup.php on line 1994
Herman Law LLC » Massachusetts Supreme Judicial Court interprets Investor’s Right to Recover for Misstatements
A law firm as creative as you are.
image001
You have the ambition. We can help you get there.

Massachusetts Supreme Judicial Court interprets Investor’s Right to Recover for Misstatements

Posted on Aug 12th, 2013

A recent SJC decision involving a personal investment by Jack Welch in a failed Massachusetts hedge fund. The full decision can be read here.  Welch sued the fund and its manager for their failure to disclose that the manager was involved in a civil litigation (a landlord-tenant dispute over a former residency of the manager in New York), claiming that if he had known about that matter, he never would have invested.

The SJC upheld the summary judgment entered against Welch, holding that omission ultimately was not material enough to find the fund liable.
This case is interesting for its confirmation of certain provisions under the Massachusetts law on the following issues:

  • The statutory standard of a misstatement or omission is material  under the Massachusetts Securities Act is whether there is a “substantial likelihood” that the omitted information would have “significantly altered the ‘total mix’ of information” available to the ordinary reasonable investor.
  • A “material” fact is oneA “material” fact is one to which a reasonable person would attribute importance for his or her choice of action in the transaction at issue. Zimmerman v. Kent, 31 Mass.App.Ct. 72, 78 (1991).
  • The court also held that if there is finding in this regard under the Uniform Securities Act, then there cannot be a finding that the actions were deceptive under Chapter 93A.
  • The decision also provides a helpful summary of Massachusetts common law on fraud and negligent misrepresentation:
    • Intentional misrepresentation (or “deceit”): (a) an intentional or reckless (b) misstatement (c) of an existing fact (d) of a material nature, (e) causing intended reasonable reliance and (f) financial harm to the plaintiff.
    • Negligent misrepresentation: (a) a provision, in the course of the defendant’s business, profession, employment, or in the course of a transaction of his pecuniary interest, (b) of false information for the guidance of others in their business transactions, (c) without the exercise of reasonable care or competence in the acquisition or communication of the information, (d) causing justifiable reliance by, and (e) resulting in pecuniary loss to, the plaintiff.

If you have any questions about this topic, please feel free to email me directly.   My email address is dimitry.herman@hermanlawllc.com.