In re General Electric Co. Securities Litigation
857 F. Supp. 2d 367
S.D.N.Y.2012Background
- Lead Plaintiff State Universities Retirement System of Illinois sues GE under Exchange Act §10(b) and Securities Act §§11,12(a)(2), 15, alleging misstatements during the Class Period (Sept 25, 2008–Mar 19, 2009) about GE and GE Capital’s health and risks.
- Plaintiff claims GE withheld information on commercial paper funding, GE Capital asset quality, ratings risk, dividend sustainability, and 2009 GE Capital earnings.
- Alleged misrepresentations target statements in the October 2008 Offering materials and ongoing disclosures, including asset valuations, loan quality, and reliance on AAA rating.
- Defendants include GE’s CEO Jeffrey Immelt, CFO Keith Sherin, GE Capital executives Neal, Bornstein, Cary, and the October Offering underwriters.
- Court grants in part and denies in part the motion to dismiss the SAC under Fed. R. Civ. P. 12(b)(6).
- The opinion evaluates Exchange Act §10(b)/Rule 10b-5 claims, PSLRA scienter standards, loss causation, and related Exchange Act/Section 15 claims, as well as corresponding Sections 11/12(a)(2) claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality of commercial paper disclosures | GE misrepresented funding risk by denying difficulties with commercial paper. | Statements were true or non-material opinions/forward-looking safe harbors. | Plaintiff plausibly states misrepresentation/omission; not all are dismissed. |
| Quality of GE Capital portfolio disclosures | GE’s qualitative claims about portfolio quality were false given subprime/non-investment-grade exposure. | Quality descriptors were non-actionable puffery; failed to show duty to disclose every detail. | Some explicit portfolio quality statements plausibly misleading; others deemed non-actionable puffery. |
| Dividend statements and forward-looking guarantees | Statements guaranteeing or implying 2009 dividend were false in light of distress at GE Capital. | Forward-looking safe harbor applies; claims improper only if actual knowledge of falsity exists. | Plausible misstatement/guarantee under Tellabs framework; not foreclosed by IBM distinction. |
| Reclassification of assets and GAAP treatment | GE shifted assets to avoid write-downs (held-to-maturity vs available-for-sale) in violation of GAAP. | Witnesses unreliable or insufficient to prove ongoing misclassification; GAAP interpretations contested. | Reclassification/valuation claims sufficiently pled; GAAP violation plausible. |
| Loan loss reserves adequacy | Reserves underestimated losses given rising delinquencies and non-earning receivables. | Portfolio differences and standard GAAP allowances do not show clear misstatement. | Loan-loss reserves claim insufficiently pled; not sustained at this stage. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (three-step analysis for strong inference of scienter)
- In re IBM Corp. Sec. Litig., 163 F.3d 102 (2d Cir. 1998) (forward-looking statements and IBM precedent)
- ECA & Local 134 IBEW Joint Pension Trust of Chi. v. JPMorgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (materiality and PSLRA considerations in IIED claims)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (materiality and scienter standards in insider fraud)
- In re Time Warner Inc. Sec. Litig., 9 F.3d 259 (2d Cir. 1993) (duty to disclose in context; materiality standards)
- Lasker v. N.Y. State Elec. & Gas Corp., 85 F.3d 55 (2d Cir. 1996) (misstatement and market expectations standard)