## Facts

- MCG Capital Corporation, a publicly traded business development company, made debt and equity investments in small and mid-sized private businesses.
- Bryan J. Mitchell, MCG’s founder, CEO, and chairman, represented that he held a bachelor’s degree in economics from Syracuse University.
- Mitchell had attended Syracuse University for three years studying economics but did not graduate.
- MCG included the degree representation in SEC filings and offering materials related to its public offering and subsequent disclosures.
- After Mitchell admitted he did not have the degree, MCG corrected the disclosures publicly.
- Following the correction, MCG’s stock price dropped, and shareholders filed a putative class action alleging investor losses tied to the revelation.

## Issues

1. Whether a CEO’s false statement that he possessed a college degree, when he had attended college but not graduated, is a material misrepresentation under § 11 of the Securities Act of 1933 and § 10(b)/Rule 10b-5 of the Securities Exchange Act of 1934.
2. Whether materiality could be resolved against plaintiffs as a matter of law on a Rule 12(b)(6) motion to dismiss.

## Decision

- The Fourth Circuit affirmed the district court’s dismissal for failure to state a claim.
- The court held Mitchell’s degree misrepresentation was immaterial as a matter of law and thus could not support liability under § 11 or § 10(b)/Rule 10b-5.
- Because the pleaded primary violations failed, the related control-person claims against the individual defendants also failed.

## Legal Principles

- A misstatement is material only if there is a substantial likelihood that a reasonable investor would view the information as significantly altering the total mix of information available.
- Although materiality is commonly fact-bound, a court may decide immateriality as a matter of law when the alleged misstatement is so obviously unimportant to a reasonable investor that reasonable minds could not differ.
- Securities laws do not make every falsehood in offering or periodic disclosures actionable; liability requires a misstatement with meaningful significance to investment decisionmaking in context.

## Conclusion

The Fourth Circuit concluded that the difference between having completed a college degree and having attended three years without graduating, in light of the executive’s disclosed experience and the company’s overall public information, would not significantly alter the total mix for a reasonable investor; the complaint was properly dismissed at the pleading stage.


Greenhouse v. MCG Cap. Corp., 392 F.3d 650 (4th Cir. 2004)