(CN) – Shareholders of Reliant Interactive Media failed to prove that the company’s misrepresentations about its merger with Thane International caused their stock price to plummet, the 9th Circuit ruled.
Judge Diarmuid O’Scannlain noted that the share price remained steady for 19 days after investors found out that shares of the merged company would be listed on the NASDAQ Over-the-Counter Bulletin Board (OTCBB) instead of the more advantageous NASDAQ National Market System (NMS).
When the companies merged in 2001, Reliant shareholders received Thane shares valued at about $7 a share, with a minimum bid price of $5 per share on the national market.
Thane and Reliant were both in the business of selling consumer products through home-shopping channels and infomercials.
In a prospectus filed with the SEC, Thane stated that its stock, which had not been publicly traded before, was “approved for quotation and trading on the NASDAQ National Market upon completion of the merger.”
Investors claimed this was a misrepresentation, because the stock actually traded on the less established OTCBB.
The 9th Circuit acknowledged that the prospectus may have misled investors about where the stock would be listed, but noted that the stock price remained at or above $7 a share for 19 days after investors learned the truth.
“It is true that listing on the NMS is superior to listing on the OTCBB … but that is irrelevant,” Judge O’Scannlain wrote. “The question at issue here is whether listing on the OTCBB instead of the NMS actually caused the investors’ loss.”
Shareholders saw the value of their Thane stock plummet from $7 in 2001 to $1.96 by Aug. 16, 2002, due in part to an industry slump. Thane eventually bought out existing shareholders at 35 cents a share in 2004.
The three-judge panel found no definitive evidence that the lower court’s loss-causation findings were incorrect.
“The investors’ own expert testified that listing on the OTCBB instead of the NMS would not necessarily reduce Thane’s stock price,” O’Scannlain wrote.