The U.S. Court of Appeals for the Third Circuit recently reiterated the long-standing principles that a defendant’s alleged misrepresentations may be rendered immaterial by a defendant’s sufficient disclosure of information; and even if alleged misrepresentations are materially misleading, a Rule 10b-5 claim may still fail if the allegations do not demonstrate a strong inference of scienter. In Fan v. StoneMor Partners, 927 F.3d 710, 713 (3d Cir. 2019), the Third Circuit affirmed the district court’s decision in which it found that StoneMor, a master limited partnership, sufficiently informed investors of its business practices and granted the defendants’ motion to dismiss a putative securities fraud class action complaint.

The plaintiffs brought a complaint against StoneMor, its related entities and their executives after StoneMor announced that it would restate several years of previously reported financial statements. The restatement temporarily prevented StoneMor from selling equity units, receiving proceeds, and using those proceeds to pay down borrowings used to fund distributions. As a result, it was not able to make distributions. StoneMor’s unit priced dropped by 45%, which the plaintiffs alleged was the result of the inability to make distributions.