## Facts

- Centel Corporation owned local telephone companies and cellular telephone systems and pursued a plan to sell the company or its assets through a competitive auction.
- Centel retained two investment banks to conduct the auction and publicly announced the process, after which Centel’s stock price rose substantially.
- The auction produced few bids, and the bids received were below the level Centel’s board considered acceptable.
- During the auction process, Centel issued public statements portraying the auction as proceeding favorably and expressing optimism about the process.
- Centel ultimately did not complete a sale through the auction; instead, it negotiated a sale to a non-bidder at $33.50 per share.
- Investors who purchased Centel stock after the auction was announced sued, alleging they were misled into buying at inflated prices by optimistic statements that omitted adverse developments in the bidding process.
- The district court granted summary judgment for Centel and two officers on claims under § 10(b), Rule 10b-5, and § 20(a), and the investors appealed.

## Issues

1. Whether Centel’s optimistic public statements about the auction, given weak bidding, were materially false or misleading statements or omissions under § 10(b) and Rule 10b-5.
2. Whether the investors produced evidence sufficient to survive summary judgment on securities-fraud and related § 20(a) control-person claims.

## Decision

- The Seventh Circuit affirmed summary judgment for defendants.
- The court held the challenged statements were generalized expressions of optimism and “cheerleading” rather than concrete, verifiable assertions, and thus were not actionable misrepresentations.
- Applying the materiality “total mix” standard, the court concluded the statements would not have significantly altered what a reasonable investor understood about the uncertainty and risks of an auction process.
- The court rejected the investors’ theory that Centel’s optimistic communications created a duty to disclose every negative internal development about the auction.
- Because the primary fraud claim failed as a matter of law, the derivative § 20(a) control-person claim also failed.

## Legal Principles

- Liability under § 10(b) and Rule 10b-5 requires a materially false or misleading statement or omission; vague corporate optimism ordinarily is not material.
- Statements that are too indefinite or subjective to be proven true or false are typically treated as non-actionable puffery.
- Materiality turns on whether a reasonable investor would view the information as significantly altering the “total mix” of available information.
- A company that speaks about a topic must avoid materially misleading impressions, but securities law does not impose a broad duty to disclose all internal assessments or interim negative developments absent a materially misleading statement.
- Poor transactional outcomes or business disappointment, without a concrete, falsifiable misrepresentation, do not convert corporate communications into actionable securities fraud.

## Conclusion

The Seventh Circuit held that Centel’s upbeat characterizations of its auction process were non-actionable puffery and immaterial under the federal securities laws, warranting summary judgment on the § 10(b)/Rule 10b-5 claims and dismissal of the related § 20(a) claims.


Eisenstadt v. Centel Corp., 113 F.3d 738 (7th Cir. 1997)