Greenhouse v. MCG Capital Corp.
United States Court of Appeals for the Fourth Circuit
392 F.3d 650 (2004)
MCG Capital Corporation (MCG) (defendant) was a venture-capital firm. Bryan Mitchell helped found MCG and was MCG’s chairman and chief executive officer. Mitchell lied to MCG about graduating from Syracuse University (Syracuse); Mitchell attended Syracuse but did not graduate. Based on Mitchell’s lie, MCG’s filings with the Securities and Exchange Commission (SEC) falsely stated that Mitchell graduated from Syracuse. In response to pressure applied on him by journalist Herb Greenberg, Mitchell confessed his lie to MCG’s board on November 1, 2002. Later that day, MCG publicly disclosed that Mitchell did not graduate from Syracuse. Over the next few days, Greenberg wrote several articles questioning what else Mitchell may have lied about, and a securities analyst downgraded MCG’s stock and wondered about other MCG-related credibility issues. On November 3, MCG’s board withheld Mitchell’s 2001 and 2002 bonuses and removed Mitchell as MCG’s chairman while retaining Mitchell as chief executive officer. Charles Greenhouse and other MCG shareholders (shareholders) (plaintiffs) sued MCG, alleging that MCG violated the federal securities laws by falsely claiming that Mitchell graduated from Syracuse. The shareholders did not allege any other false or misleading statements in MCG’s SEC filings, which discussed Mitchell’s and MCG’s other board members’ and managers’ experience managing financial institutions, MCG’s historical earnings, and other pertinent financial information about MCG. MCG moved to dismiss the complaint, arguing that the challenged statements were not material. The shareholders responded that (1) Mitchell’s education was material because Mitchell was a key manager and (2) management’s integrity is always material. The district court dismissed the complaint. The shareholders appealed.
Rule of Law
Holding and Reasoning (Gregory, J.)
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