Judge Denise Cote
In actions involving alleged misrepresentations in offering materials for residential mortgage-backed securities bought by Fannie Mae and Freddie Mac between 2005 and 2007, certain “Individual Defendants”—who signed shelf registration statements filed with the SEC but not prospectus supplements—sought partial judgment on the pleadings. The motion by the Individual Defendants—allegedly liable as a “control person” under Securities Act §15 or as directors or signing officers under §11—required the court to decide if SEC Rule 430B radically altered §11 liability for individuals who sign shelf registration statements. The court held Rule 430B did not do so. An accompanying SEC release clarified that the filing of a supplement prospectus updating the registration statement or reflecting fundamental changes in statement information did not create a new “effective date”—for §11 liability purposes—for directors and signing officers. The SEC intended individuals to remain liable for “fundamental changes” to registration statement information. The subject supplements were “fundamental changes” because they held the details about underlying collateral and the ability of borrowers to repay the loans, material to investors.
