Where it was common knowledge that firms that held subprime loans were in distress, it was not securities fraud for a firm to not disclose that fact.
“Securities law requires issuers to disclose firm-specific information, not news that concerns the industry or economy as a whole. Thus we held in Wielgos v. Commonwealth Edison Co., 892 F.2d 509 (7th Cir. 1989), that a firm building a nuclear power plant could not be liable for failing to tell investors that the Nuclear Regulatory Commission was making it more difficult, and more expensive, for operators to finish and operate plants. Reporters and investors well knew that fact, which hurt the value of all electric utilities that had nuclear plants in operation, under construction, or in planning. Just so here. In July 2007 the whole world knew that firms that had issued, packaged, or insured subprime loans were in distress. Nothing MGIC said, or didn’t say, could conceal that fact.”
“Judge Friendly famously said that there is no securities fraud by hindsight. Denny v. Barber, 576 F.2d 465, 470 (2d Cir. 1978). Issuers need not be prescient. The July 19 press release did not misrepresent the past or C-BASS’s current condition, and MGIC had no duty to foresee the future.”
11-1080 Fulton County Employees Retirement System v. MGIC Investment Corp.
Appeal from the United States District Court for the Eastern District of Wisconsin, Adelman, J., Easterbrook, J.