In re America West Airlines, Inc.

In late 1990, America West Airlines, Inc. (America West) (defendant) began experiencing significant losses, severely harming its liquidity. America West had various debt agreements that contained a leverage provision prohibiting America West from surpassing an established debt-to-net-worth ratio. America West and its creditors amended this provision to enable America West to obtain additional financing. In November 1990, America West defaulted on the amended leverage provision, giving creditors the option to call the debt due immediately. In mid-January 1991, the creditors waived America West’s default and again amended the leverage provision. At a subsequent board meeting, America West management noted its concern about the company’s ability to comply with the amended provision. In early February 1991, America West defaulted on the amended leverage provision, again giving creditors the option to call the debt due. In late March 1991, the creditors again waived the default and again amended the leverage provision. On its 1990 Form 10-K, America West disclosed the November 1990 default but stated that the default was waived and that America West would be able to comply with the amended leverage provision going forward. America West did not disclose any liquidity concerns or uncertainties. The Securities and Exchange Commission (SEC) (plaintiff) instituted an enforcement action against America West, alleging that the company’s failure to disclose these uncertainties violated SEC regulations.