ZPR Investment Management, Inc., et al. v. Securities and Exchange Commission

(i) In the landmark case of Basic Inc. v. Levinson, 485 U.S. 224, 231-232, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988), this Court held that to satisfy the standard of materiality “there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available” quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). In the present case and before any investment decision, Petitioners made corrective disclosures available to prospective clients after placing advertisements that contained a noncompliant claim of compliance with the Global Investment Performance Standards (“GIPS”). The Eleventh Circuit held that “after-advertisement disclosures” cannot “negate the materiality of the earlier misrepresentation” since “materiality is determined at the time the false statement is made.” The question presented is: Whether for purposes of determining materiality, disclosures made after a false or misleading statement or omission is published in an advertisement that correct the nature of the false or misleading statement or omission should be included as part of the total mix of information considered by a reasonable investor in making an investment decision? (ii) Petitioner Max E. Zavanelli held a sincere belief that an investment newsletter was not an advertisement that GIPS applied to. The Eleventh Circuit affirmed findings of the Securities and Exchange Commission (“Commission”) that Petitioners