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GAF Corp. v. Milstein - 453 F.2d 709 (2d Cir. 1971)

Rule:

The obligation to file truthful statements is implicit in the obligation to file with the issuer, and a fortiori, thus, the issuer has standing under 15 U.S.C.S. § 78m(d) to seek relief in the event of a false filing.

Facts:

GAF Corporation filed its complaint in the United States District Court for the Southern District of New York alleging that Morris Milstein, his two sons, Seymour and Paul, and his daughter, Gloria Milstein Flanzer, violated section 13(d) of the Securities Exchange Act first by failing to file the required statements and then by filing false ones. The complaint also alleged violation of section 10(b) based on the same false statements and, in addition, market manipulation of GAF stock. The Milsteins moved for dismissal under Fed. R. Civ. P. 12(b)(6) on the ground that the complaint failed to state a claim on which relief could be granted or, in the alternative, for summary judgment under Rule 56. The motion was granted. GAF appealed.

Issue:

Is organizing a group of stockholders owning more than 10% of a class of equity securities with a view to seeking control a reportable event under Section 13(d) of the Exchange Act?

Answer:

Yes

Conclusion:

The Court of Appeals for the Second Circuit reversed because organizing a group of stockholders owning more than 10 percent of a class of equity securities with a view to seeking control must be reported under § 78m(d). Moreover, the obligation to file such a statement is implicitly included the requirement that such a filing be truthful. Therefore, plaintiff's complaint stated a claim upon which relief could be granted. However, the appellate court affirmed the dismissal of GAF’s claim based upon violations of Rule 10(b) because GAF, an issuer, had no standing to sue under Rule 10(b).

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