## Facts

- GAF Corporation alleged that members of the Milstein family acted together as a control group to seek influence or control over GAF.
- The Milsteins acquired about 10.25% of GAF’s convertible preferred stock through a merger-related transaction.
- GAF alleged the Milsteins agreed to act together regarding acquisition, holding, and voting of GAF securities, thereby forming a “group” whose holdings should be aggregated.
- GAF claimed the Milsteins failed to file required beneficial-ownership disclosures under Exchange Act § 13(d) and, after filing, made false or misleading statements about their intentions and plans.
- GAF also alleged fraud and manipulation under Exchange Act § 10(b) and SEC Rule 10b-5 based on the alleged misstatements and purported conduct aimed at depressing the stock price and discrediting management.
- GAF sought injunctive relief, including restraints on further acquisitions and limits on voting the Milsteins’ shares.
- The district court dismissed the complaint for failure to state a claim, concluding (1) the pleaded “group” allegations did not trigger § 13(d) reporting on the facts alleged and (2) GAF lacked standing under § 10(b)/Rule 10b-5 because it was not a purchaser or seller.
- GAF appealed.

## Issues

1. Whether shareholders who agree to act together with respect to acquiring, holding, or voting securities constitute a “person” under § 13(d) such that their holdings are aggregated for disclosure purposes.
2. Whether an issuer has standing to seek injunctive relief to enforce § 13(d) disclosure obligations and to remedy false or misleading § 13(d) filings.
3. Whether an issuer that did not purchase or sell securities has standing to seek injunctive relief under § 10(b) and Rule 10b-5 for alleged false control-contest disclosures and related conduct.

## Decision

- The Second Circuit reversed the dismissal of the § 13(d) claim and held that a coordinated shareholder “group” can be treated as a single “person” whose holdings are aggregated for purposes of the reporting threshold.
- The court held that the issuer had standing to pursue injunctive relief for alleged violations of § 13(d), including relief addressing inaccurate or incomplete disclosures.
- The court affirmed dismissal of the § 10(b)/Rule 10b-5 claim because the issuer was not a purchaser or seller in connection with the alleged fraud.
- The judgment was affirmed in part and reversed in part.

## Legal Principles

- Under Exchange Act § 13(d)(3), two or more persons who agree to act together for the purpose of acquiring, holding, disposing of, or voting securities may be treated as a single “person,” requiring aggregation of their beneficial ownership for § 13(d) reporting.
- Section 13(d) is a disclosure provision aimed at informing the market of large accumulations of securities and potential shifts in corporate control; the trigger is coordinated ownership exceeding the statutory threshold, not the particular method by which shares were obtained.
- An issuer may have an implied equitable remedy to seek injunctive relief to enforce § 13(d) disclosure duties and to compel accurate, complete, and timely filings.
- Private standing under § 10(b) and Rule 10b-5 generally requires a purchase or sale of securities by the plaintiff; an issuer lacking that transactional nexus cannot obtain injunctive relief under those provisions based solely on alleged misstatements in control-contest filings.

## Conclusion

The Second Circuit held that coordinated shareholders can form a § 13(d) “group” whose aggregated holdings trigger disclosure duties, and that the issuer may seek injunctive relief to enforce those duties, but the issuer cannot proceed under § 10(b)/Rule 10b-5 without meeting the purchaser-seller standing requirement.


GAF Corp. v. Milstein, 453 F.2d 709 (2d Cir. 1971)