## Facts

- A limited partnership formed to acquire a controlling minority interest purchased 300,000 personally held shares of a public company from the company’s president and board chair, representing about 38% of outstanding shares.
- The parties negotiated a price of $8.00 per share, tied to expected earnings per share and the company’s reported financial results and growth prospects.
- The buyer alleged the seller made material misstatements and omitted material information during negotiations (roughly August–December 1972) concerning:
  - the accuracy of the company’s quarterly financial reports (later determined to require restatement, revealing materially lower earnings);
  - problems tied to a division’s contracts and related legal/regulatory exposure; and
  - the performance and patent status of a key refrigeration product that was important to the company’s earnings.
- Before closing, the key product’s patent application had been rejected on non-novelty grounds, but the seller did not disclose the rejection until after closing.
- After the company publicly filed restated financials, reported earnings dropped significantly and the market price fell from about $8.00 to about $4.00 per share.
- The buyer claimed it relied on the seller’s statements and silence in entering the transaction and suffered losses when the undisclosed information became known.

## Issues

1. Whether the seller’s misstatements and omissions in connection with the private sale of his shares constituted securities fraud under Exchange Act § 10(b) and SEC Rule 10b-5 (including materiality, scienter, and transaction causation).
2. Whether the same conduct violated Florida’s securities fraud statute, Fla. Stat. § 517.301, and constituted Florida common-law fraud.
3. Whether the buyer proved reliance and damages attributable to the misstatements and omissions, and the proper measure of damages.

## Decision

- The court found for the buyer after a bench trial and entered judgment against the seller.
- The court held the seller liable under § 10(b) and Rule 10b-5 for material misstatements and omissions made in connection with the stock sale.
- The court also found liability under Fla. Stat. § 517.301 and Florida common-law fraud based on the same misconduct.
- The court awarded damages; on later review, liability was affirmed but the damages determination was reversed and remanded for reassessment.

## Legal Principles

- A corporate insider selling personally held shares in a negotiated transaction may be liable under Rule 10b-5 for materially false statements or omissions of material facts necessary to make statements not misleading.
- Information is material if a reasonable investor would consider it important in deciding whether and on what terms to purchase the securities; later corrective disclosures and significant price drops can support materiality and loss causation.
- Scienter for § 10(b)/Rule 10b-5 may be shown by knowing or reckless conduct, including withholding adverse, nonpublic information while speaking about the company’s condition and prospects.
- Reliance may be inferred where the buyer’s decision depended on the seller’s representations and the seller’s nondisclosure concerned matters central to the investment’s value.
- The same course of deceptive conduct in a securities transaction can support overlapping liability under federal securities law, Florida’s securities statute, and Florida common-law fraud, subject to the proof required for each.

## Conclusion

The court held that a company’s president and board chair committed actionable securities fraud, as well as state statutory and common-law fraud, by materially misrepresenting and concealing adverse financial information, division-level problems, and a key product’s patent setbacks during a negotiated sale of a large personal stock block, and it entered judgment for the purchaser with damages subject to later recalculation on appeal.


Alna Cap. Assocs. v. Wagner, 532 F. Supp. 591 (S.D. Fla. 1982)