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Lowinger v. Morgan Stanley & Co.

United States Court of Appeals for the Second Circuit
841 F.3d 122 (2016)


Goldman Sachs & Company, Morgan Stanley & Company, LLC, and J.P. Morgan Securities LLC (underwriters) (defendants) underwrote the initial public offering (IPO) for Facebook, Inc. Each underwriter, individually, owned less than 10 percent of Facebook’s stock. Together, the underwriters owned more than 10 percent. The underwriters and other pre-IPO shareholders were subject to a lock-up agreement, preventing them from selling their pre-IPO stock for a certain time period (ranging from 91 to 211 days) without underwriter approval. Robert Lowinger (plaintiff), a Facebook shareholder, sued the underwriters for violating section 16 of the Securities Exchange Act of 1934. Specifically, Lowinger alleged that the underwriters did not adequately disclose their revised, lower estimates for Facebook’s revenues. In other words, the underwriters allegedly did not adequately disclose, under section 16(a), the value of pre-IPO securities they owned. The district court dismissed Lowinger’s complaint because the underwriters did not constitute a “group,” and thus the underwriters did not meet section 16(b)’s 10-percent threshold. Lowinger appealed.

Rule of Law


Holding and Reasoning (Winter, J.)

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