Semerenko v. Cendant Corp.

A class of investors (Class) claimed that Cendant Corp. (Cendant) and its directors, officers, and accountant made misstatements regarding Cendant throughout a tender offer for shares of American Bankers Insurance Group, Inc. (ABI) common stock resulting in falsely raising the price the Class bought its shares of ABI,and when disclosed, the misstatements triggered the expiration of the merger contract and a ensuing loss for the investors. In early 1998, Cendantprovided a competing tender offer for ABI at $58 per share and in accordance with its tender offer, Cendant filed with the Securities Exchange Commission (SEC) a Schedule l4D-l that exaggerated its earnings in previous financial reporting periods. American International Group, Inc. (AIG) reacted by making an identicaltender offer and Cendant changed its offer to $67 per share. Cendantproceeded to engage in a merger agreement with ABI. On April 15, 1998, Cendant declared that its previous financial reports were not dependable as a result of accounting abnormalities found, and that the abnormalities were present in just one unit, accounting for less than a third of Cendant'stake-homerevenue. On the heels of the declaration, ABI stock price declined about 11%. Afterwards, Cendant continued to state that it planned on finishing the ABI merger. In July 1998, Cendantdisclosed that the April declaration contained errors, stating that the true revenue loss would be double the amount initially reported, and that more abnormalities in other units have been found.Cendantdistributedadditional press releases along with an audit report, more press releases and an audit report that specified there had been fraudulent financial reportingin August 1998. Following the filing of the audit with the SEC the ABI common stock price fell further. Cendant filed an amended Form 10-K for 1997 in September of 1998declaring losses of $217.2 million, instead of profits of $55.5 million, and the price of ABI dropped yet again. Finally in October 1998, Cendant and ABI reported that they were ending the merger. ABI stock plummeted once again, this time the investors filed suit under § 10(b) of the Securities Exchange Act of 1934 (Act) and Rule 10b-5 thereunder. The district court dismissed the action for failure to state a claim, clarifying that the complaint did not establish that the Class’s buying of ABI common stock was not done in connection with the making of the purported misstatement s, that the Class relied on the misstatement s, and that the Classendured a loss as the proximate result of the allegedmisstatement s. The court of appeals granted review.