7 F.3d 357, 3d Cir., 1993
A group of investors purchased bonds to provide financing for the eventual completion of Trump’s Taj Mahal casino. P alleges that the prospectus which accompanied the bonds contained “affirmatively misleading statements and materially misleading omissions.” Trump issued the bonds to complete the project at a comparably high interest rate of 14%. Ps hold the following section to be at issue: “The Partnership believes that funds generated from the operation of the Taj Mahal will be sufficient to cover all of its debt service.” P holds this to be misleading because D never believed this to be true. D argues the prospectus had many disclaimers and cautionary statements stressing the riskiness of the investment.
P must prove “that the defendants made untrue or misleading statements or omissions of material fact.”
“A statement or omission must be considered in context, so that accompanying statements may render it immaterial as a matter of law.”
“Whether a reasonable investor would find the alleged misstatements and omissions material to his or her decision to invest in the Taj Mahal.”
“Bespeaks Caution Doctrine” … “A court may determine that the inclusion of sufficient cautionary statements in a prospectus renders misrepresentations and omissions contained therein is non-actionable. Statements or omissions must be considered in context, so that accompanying statements may render it immaterial as a matter of law.”
No, affirmed. Defendants used a great deal of cautionary language in the prospectus. The language used could have influences a reasonable investor’s decision to invest. Moreover, given the specificity of the disclaimers, it’s more likely a reasonable investor would be lead to believe the bonds were anything but a risky investment. Also, the cautionary language was not at all buried along with the misleading information, as P claims. In the sentence immediately following the sentence P claims to be misleading, D inserts yet another disclaimer eluding to the risky nature of the bonds.
In the “Bespeaks Doctrine” there has to be a “substantial likelihood” that a disclosure or statement would have been viewed by a reasonable investor “as having altered the total mix” of information available. Forward looking statements that are followed by or contextualized by cautionary language in this case is sufficient to influence a reasonable investor.