Barnes v. Osofsky

Meyer Osofsky (defendant) was a principal shareholder, director, and officer in Aileen, Inc. (Aileen). In 1963, Aileen, through Osofsky, underwriters, and others (defendants) filed a registration statement for new stock. At the time of that filing, Aileen already had issued and registered other shares that were being publicly traded. Purchasers of Aileen stock brought class-action suits against Osofsky and others, alleging they violated § 11 of the Securities Act of 1933 because the 1963 registration statement and its related prospectus were false and misleading. Most purchasers settled the litigation. The proposed settlement, which required district-court approval, provided that only shares that actually were registered by the 1963 registration statement (newly registered shares) could be the basis for damages. That is, to recover under the proposed settlement, a purchaser would have to show that each specific share for which it sought compensation was newly registered. Two purchasers—Attilo Occhi and Ered Zilker (objectors) (plaintiffs)—objected to the settlement, arguing that the settlement should allow damages based on all shares purchased during the relevant time, not just newly registered shares. They contended that although § 11 is unclear about who may sue, § 11’s ambiguous language should be interpreted broadly because (1) the false and misleading 1963 registration statement affected the price of all Aileen shares (not just newly registered shares) and all victims should be treated equally, (2) whether or not a purchaser acquired a newly registered share was a matter of accident because most trades are effected by brokers who do not care whether a share was newly registered, and (3) it is difficult to trace the lineage of any particular share. The district court approved the settlement over the complaint of the objectors. The objectors appealed.