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Securities Regulation Keyed to Coffee
Ganino v. Citizens Util. Co.
Facts
A publically traded company, Citizens Utility Company, made and obtained about $10 million in dues from Hungarian Telephone & Cable Corp (HTCC) in 1995 for loans Citizens made to it. This amount was documented in 1996 as first and second quarter revenues but due to Citizens’ 1995 annual fiscal statement (1995 Form 10-K) reported that Citizens had been paid by HTCC, buyers of Citizens stock filed suit under 10b-5 claiming they had been deceived into trusting the $10.1 million booked in 1996 as new earnings. In particular, Citizens reported a 15% rise for the first quarter of 1996 (when compared with the same time the previous year) failing to mention that a majority of this rise was attributed to HTCC in 95, instead stated in its First Quarter 10-Q. Comparably, Citizens announced a 10% rise for the second quarter and again failed to mention that most of the increase was due to HTCC fees. Ensuing press releases and in Citzens’ Third Quarter 1996 Form 10-Q and the 1996 Form 10-K contained the statement of these fees. The HTCC fees totaled 1.7% of Citizens entire 1996 profits or, about $22 million. Citizens reported less than anticipated income for the first quarter of 1997 but stated it was not related to a decline in HTCC fees. The district court held that the purported distortions were immaterial as a matter of law as a result of the total amounting to only 1.7% of Citzens income in 1996. The court of appeals granted review.
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