A former shareholder-partner of a privately-held company asserted claims under, inter alia, § 10 of the Securities Exchange Act of 1934 and Rule 10b-5 against his ex-partner and the company in connection with his sale of stock in the company. Under the terms of the plaintiff’s employment agreement, he was required to sell his stock to his ex-partner upon his resignation. The plaintiff contended that he accepted an unreasonably low sale price for his shares because defendants knew but did not disclose that the company’s financial performance had greatly improved. The District Court granted defendants’ motion for summary judgment against the federal securities claim.

On appeal, the plaintiff asserted that he agreed to sell his stock for $16,000 because the defendants withheld information about the company’s improved performance after his resignation which, according to the plaintiff, supported a $5,000,000 sale price for his shares. The Court of Appeals noted, however, that (i) the plaintiff knew that he was unaware of the company’s financial condition following his resignation, and (ii) the defendants did not make any false or misleading statements about the company’s financial condition (but simply refused to provide plaintiff with any information). The Court ruled that even assuming that the alleged omission was material, because the plaintiff “knew what he did not know,” the omission was neither manipulative or deceptive. Accordingly, the Court affirmed the dismissal of the federal securities law claims. (Cardon v. Testout! Corporation, 2007 WL 2285860 (C.A.10 Aug. 10, 2007))