Judge Louis Stanton
Carbo supplies ceramic proppant, used in hydraulic fracking. By mid 2011 the price of natural gas fell below that of oil. Carbo's proppant sales declined in gas fields while demand rose in "areas with a greater propensity for liquid oil production" ("liquid-rich plays"). Rail transport and storage problems hampered Carbo's reconfiguration of its system to distribute proppant to liquid-rich plays. Class actions investors who bought or sold shares in Carbo—or options contracts—charged Carbo, chief executive Kolstad, and chief financial officer Bautista with violating Securities Exchange Act §10(b), and Kolstad and Bautista with violating §20(a) as "control persons." A Jan. 26, 2012, press release countered prior public statements—alleged only to have been misleading—about the demands for, and its ability to distribute, proppant. Discussing Kolstad's statements during an Oct. 27, 2011, conference call with investors, the court found Carbo sufficiently disclosed the existence and nature of a logistical problem stemming from its shift to new, financially important liquid-rich markets. Thus, a reasonable investor was put on notice that Carbo's attempts to meet the demand for its proppant product faced logistical and delivery obstacles.
