Confusion in Lock-Up: Irrevocable Agreements and Section 11 Claims

Author: Dan Stroh, Associate Member, University of Cincinnati Law Review

On October 6, 2014, the Supreme Court denied a writ of certiorari in Moores v. Hildes, which involved the interpretation of § 11 of the Securities Act of 1933.[1] Section 11 protects investors by requiring disclosures regarding the purchase of securities and imposing liability on actors responsible for misstatements or errors in information regarding the securities.[2] By holding directors and other company leaders responsible for the accuracy of required statements, § 11 aims to instill confidence in securities investors. Generally, the Act does not require an investor to show he relied on misleading information in a company’s registration statements to impose liability on those responsible for the accuracy of the information.[3] However, the Eleventh and Ninth Circuits are split as to whether a plaintiff must show reliance on a misleading registration statement when the registration statement was issued after the shareholder entered a binding lock-up contract in a merger. By choosing not to review Moores v. Hildes, the Supreme Court refused to address the issue of reliance when an investor utilizes § 11 to enforce accountability for this type of error. Because § 11 is one of the few remaining areas of securities law where injured investors turn for protection from misstatements affecting the value of their investments,[4] the Supreme Court’s failure to affirm the ruling in Hildes will result in continued confusion, lack of protection for investors, and disparate rulings that vary by jurisdiction.

Continue reading “Confusion in Lock-Up: Irrevocable Agreements and Section 11 Claims”