## Facts

- International Flavors & Fragrances Inc. (IFF) acquired Frutarom Industries Ltd. (Frutarom) in a merger that closed in October 2018.
- Investors purchased IFF securities during May 7, 2018 to August 12, 2019.
- The investors alleged that, for years before the merger, Frutarom executives engaged in improper payments to employees of customers and to officials in Russia and Ukraine to obtain business and facilitate regulatory approvals.
- The investors alleged Frutarom made public statements and filings that misrepresented compliance with anti-bribery laws and the sources of its growth.
- In August 2019, IFF disclosed that Frutarom had made improper payments to customer representatives in Russia and Ukraine; investors alleged IFF’s stock price fell after this disclosure.
- The investors never purchased or sold Frutarom securities.
- The district court dismissed the § 10(b) and Rule 10b-5 claims against Frutarom and its executives for lack of statutory standing, and the investors appealed.

## Issues

1. Whether purchasers of IFF securities have statutory standing under Exchange Act § 10(b) and Rule 10b-5 to sue Frutarom and its executives for alleged misstatements about Frutarom.
2. Whether a merger-related economic connection between the alleged misstatements and the plaintiff’s traded security can satisfy the purchaser-seller standing requirement.

## Decision

- The Second Circuit affirmed dismissal for lack of statutory standing.
- The court held that § 10(b) standing is limited to purchasers or sellers of the securities about which the alleged misstatement was made.
- Because the alleged misstatements concerned Frutarom and plaintiffs traded only IFF securities, plaintiffs could not sue Frutarom or its executives under § 10(b) and Rule 10b-5.
- The court declined to expand standing based on the merger context or alleged effects on IFF’s stock price.

## Legal Principles

- Private damages actions under § 10(b) and Rule 10b-5 are limited by the purchaser-seller rule.
- Statutory standing requires that the plaintiff be an actual purchaser or seller of the securities that are the subject of the alleged misstatement.
- Market impact or economic linkage between companies (including post-merger effects) does not substitute for the purchaser-seller requirement.

## Conclusion

The Second Circuit applied a strict purchaser-seller standing rule, holding that investors who traded only the acquiring company’s shares lacked statutory standing to pursue § 10(b) and Rule 10b-5 claims against the acquired company and its executives for alleged misstatements about the acquired company, even when the alleged fraud was revealed after the merger and allegedly affected the acquirer’s stock price.


Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd., 54 F.4th 82 (2d Cir. 2022)