Galfand v. Chestnutt Corporation
United States Court of Appeals for the Second Circuit
545 F.2d 807 (1976)
- Written by Steven Pacht, JD
Facts
Chestnutt Corporation (defendant) was the investment adviser for the American Investors Fund, Inc. (American) mutual fund. Mildred Galfand (plaintiff) was a shareholder in American. Galfand sued Chestnutt, alleging it violated, among other things, Securities and Exchange Commission Rule 14a-9 by securing American’s shareholders’ approval of a change in Chestnutt’s advisory contract that would increase Chestnutt’s compensation without disclosing that (1) American would lose a rebate if the contract were changed, (2) Chestnutt sought increased compensation partly due to the depreciation of American’s assets (and not just due to uncontrollable market events), and (3) Chestnutt might owe American a refund of its fees if the shareholders did not approve of the contract change. The district court found for Galfand, agreeing that the proxy statement violated the Rule, and it rescinded the revised advisory contract. Chestnutt appealed, arguing that the standard the district court used to analyze whether its proxy-statement omissions were material had been subsequently repudiated by the United States Supreme Court.
Rule of Law
Issue
Holding and Reasoning (Kaufman, C.J.)
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