In an opinion Friday, Judge Koeltl dismissed a shareholder class action against the movie studio Lions Gate.  The case concerned how the company disclosed an SEC enforcement action over how Lions Gate handled various transactions designed to ward off efforts by investor Carl Icahn for control.  The SEC action was ultimately settled for $7.5 million, and the plaintiffs alleged that the company should have disclosed the SEC investigation when it received “Wells” notices. Judge Koeltl disagreed:

[A] government investigation, without more, does not trigger a generalized duty to disclose.

The cases the plaintiffs rely upon for a duty to disclose the Wells Notices and the SEC investigation are inapposite because (1) the defendants in those cases were subject to a preexisting duty of disclosure under the securities laws or made express prior disclosures related to the investigation which were rendered materially misleading by omitting information about the investigation, and (2) the investigation itself was material.

The plaintiffs’ cases stand for the proposition that when a company speaks on a subject, it cannot omit material facts about that subject, and cannot make a material misrepresentation about the existence of an investigation. But in this case, the plaintiffs point to no statements during the Class Period about the Transactions that were the subject of the SEC investigation or about the SEC investigation itself.. . .

Moreover, the plaintiffs have failed to allege that the investigation itself was material in that it “significantly altered the total mix of information” available to an investor . . . . The $7.5 million civil penalty was less than one percent of Lions Gate’s consolidated revenue of $839.9 million for the third quarter of 2014. That percentage is much lower than the five percent numerical threshold that the Court of Appeals for the Second Circuit has determined is a “good starting place for assessing the materiality of the alleged misstatement.”