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Hertzberg v. Dignity Partners - 191 F.3d 1076 (9th Cir. 1999)

Rule:

Section 12 of the Securities Act of 1933, 15 U.S.C.S. § 77k, permits suit against a seller of a security by prospectus only by the person purchasing such security from him, thus specifying that a plaintiff must have purchased the security directly from the issuer of the prospectus. 15 U.S.C.S. § 77l(a)(2).

Facts:

Appellee Dignity Partners, Inc. (“Dignity”) was in the business of buying the rights to life insurance proceeds from people with AIDS, paying a lump sum up front and taking over the responsibility for paying the premiums. On February 14, 1996, Dignity filed a registration statement for an initial public offering of approximately 2.7 million shares of common stock. Shortly after the offering, the fact that AIDS patients were living longer than expected because of new AIDS treatments became public knowledge. As a result of the longer lives of the insured, Dignity posted huge losses, and the stock plummeted. Appellants Hertzberg, Derosa, and Feinman ("Hertzberg") were investors who purchased Dignity stock on the open market more than 25 days after the initial offering but before the news of the longer life expectancy or large losses became public knowledge. They brought a class action claiming principally that appellee had violated § 11 of the Securities Act of 1933, 15 U.S.C.S. § 77k, for failure to disclose material facts in the registration statement. The trial court dismissed the claims on the ground that because plaintiffs had not purchased the stock in the IPO, or within 25 days thereof, they lacked standing. 

Issue:

Under the circumstances of the case, did the appellants have the standing to bring the claim against Dignity Partners, Inc.?

Answer:

Yes.

Conclusion:

The appellate court held that the appellants had standing to sue because 15 U.S.C.S. § 77k(a) provided that where a material fact is misstated or omitted from a registration statement accompanying a stock, any person acquiring such security may sue for losses caused by the misstatement or omission.

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