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The Second Circuit’s recent decision in Stratte-McClure v. Morgan Stanley, No. 13-0627-cv (Jan. 12, 2015) (2015 WL 13631) (slip opinion available here: Stratte-McClure v. Morgan Stanley) (also referred to as Fjarde AP‐Fonden v. Morgan Stanley), stirs the pot on the important issue of private section 10(b) claims based on alleged violations of Item 303 of SEC Regulation S-K, 17 CFR § 229.303. Claims founded on a purported failure to comply with Item 303 are problematic because Item 303 is the SEC’s effort to enhance disclosures of “soft information,” not historical facts, about a public company. It requires that a company evaluate and discuss the future prospect that some developments or uncertainties could be important in future company performance. Because such decisions (i) inevitably involve the exercise of management judgment the need for disclosure, and the nature and scope any such discussion, and (ii) are almost always subject to second-guessing in retrospect, when the future is revealed and the uncertainties become less uncertain, they present serious risks of converting private section 10(b) claims into a form of hindsight insurance against stock price declines.
The SEC at one time excluded forward-looking information from SEC filings, but about 40 years ago started to encourage companies to provide forward-looking information in SEC filings. This eventually led to the development of mandatory disclosure requirements of “MD&A,” the short term for the Management Discussion and Analysis of Financial Condition and Results of Operations required by Item 303.
Item 303 arose out of SEC concerns that investors were missing out on key elements of company information if they obtained only purely historical information. Informed investment decision-making could be greatly improved if investors were able to get management insights into areas of company risk and uncertainty that had not yet been realized. This type of non-historical, future-looking evaluation is often referred to as “soft information.” The area of soft information disclosure is problematic because the SEC wants to encourage management to share such evaluative analysis, but to do so in a way that does not expand company and management exposure for not reading the future correctly. Accordingly, along with developing rules encouraging such disclosure, the SEC, Congress, and the courts have taken steps to limit private securities claims based solely on allegedly inadequate forward-looking disclosures.
The SEC adopted so-called “safe harbor” rules (Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934), under which a forward-looking statement in a company’s MD&A disclosures could not be found fraudulent absent proof that it “was made or reaffirmed without a reasonable basis or was disclosed other than in good faith.” In the Private Securities Litigation Reform Act of 1995 (PSLRA), Congress enacted a more general safe harbor precluding liability in private actions for a forward-looking statement if: (i) it is identified as such and accompanied by “meaningful cautionary statements identifying important factors that could cause actual results to differ materially,” or (ii) immaterial, or (iii) the plaintiff fails to prove that the forward-looking statement was made “with actual knowledge . . . that the statement was false or misleading.” 15 U.S.C. § 78u-5(c). The first portion of this statutory safe harbor was effectively a legislative adoption of the judicially-created “bespeaks caution” doctrine under which a forward-looking statement accompanied by meaningful cautionary language was deemed immaterial as a matter of law.
Nevertheless, forward-looking statements that turn out to be inaccurate, or the failure to provide advance warning of a likely future impact of a current problem, has been a theory underlying private securities actions for decades. Because this allows a backward-looking theory of fraud to be pursued after events occurring after the alleged misleading statements or omissions are accompanied by significant stock price impact, it is a powerful lure for the plaintiffs’ class action bar.
This theory can be especially powerful in the context of so-called “material omissions.” In those cases, the plaintiff can seek damages supposedly arising out of a company’s failure to provide a prediction about the future – the failure to disclose the potential impact of facts or circumstances that later turn out to harm the company. The most difficult hurdle in these cases is finding a “duty to disclose.” The securities laws do not require the disclosure of all company information to investors, nor even all material company information. Instead, public companies are required to disclose only the specified information mandated in SEC regulations, and to ensure that when they do disclose information, they do not at the same time withhold information without which the disclosed information becomes misleading. In general, companies have no obligation to provide evaluations or predictions about possible future developments, so this “duty to disclose” requirement can be a major obstacle to a private securities action based on a failure to do so.
It is in this context that recent cases have considered the impact on private securities actions of Item 303 of Regulation S-K. Two recent appellate cases adopt very different approaches to this issue: the Second Circuit’s decision in Stratte-McClure and the Ninth Circuit’s decision in In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046 (9th Cir. 2014). It is no exaggeration to say that billions of dollars of future litigation costs and liabilities may turn on which of these approaches ultimately prevails.
Describe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. If the registrant knows of events that will cause a material change in the relationship between costs and revenues (such as known future increases in costs of labor or materials or price increases or inventory adjustments), the change in the relationship shall be disclosed.
(1) Is the known trend, demand, commitment, event or uncertainty likely to come to fruition? If management determines that it is not reasonably likely to occur, no disclosure is required.
(2) If management cannot make that determination, it must evaluate objectively the consequences of the known trend, demand, commitment, event or uncertainty, on the assumption that it will come to fruition. Disclosure is then required unless management determines that a material effect on the registrant’s financial condition or results of operations is not reasonably likely to occur.
Exchange Act Release No. 34–26831 (May 24, 1989).
NVIDIA involved the company’s alleged failure to include in its Item 303 MD&A disclosures the potential financial impact of a defect in a chip incorporated into various manufacturers’ computers and other devices. Although the existence of the defect was disclosed, the amounts to be paid under warranty obligations were allegedly known uncertainties, and the MD&A allegedly failed to include a required discussion of that prospect. Stratte-McClure involved the alleged failure by Morgan Stanley to include in its MD&A a discussion of the potential future financial impact of long positions it held on collateralized debt obligations or credit default swaps at the time of the housing mortgage meltdown.
Let’s start with a key point on which both courts agree. They both emphasize that information required to be disclosed under Item 303 may not satisfy one of the key elements of a section 10(b) claim: materiality. That is because the SEC instructions make it clear that disclosures may be required “unless management determines that a material effect . . . is not reasonably likely to occur” (emphasis added). As a result, disclosures of immaterial information are required if management cannot “determine” they are unlikely to have a future material impact. Accordingly, plaintiffs will still have the burden of pleading facts showing a required disclosure was, in fact, material. See NVIDIA, 768 F.3d at 1055; Stratte-McClure, slip op. at 18-19.
The difference between the courts – a critical one – is that the NVIDIA court concluded that Item 303’s requirement that certain immaterial information must be disclosed prevents it from creating the “duty to disclose” necessary to support a fraud claim under section 10(b), while the Stratte-McClure court concluded that the “duty to disclose” and materiality elements should be disaggregated for this purpose.
[I]n Basic, the Supreme Court stated that materiality of forward-looking information depends “upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity.” . . . As the court in Oran also determined, these two standards differ considerably. 226 F.3d at 288. Management’s duty to disclose under Item 303 is much broader than what is required under the standard pronounced in Basic. The SEC intimated this point as well: “[Item 303] mandates disclosure of specified forward-looking information, and specifies its own standard for disclosure—i.e., reasonably likely to have a material effect…. The probability/magnitude test for materiality approved by the Supreme Court in [Basic] is inapposite to Item 303 disclosure.” Exchange Act Release No. 34-26831, 54 Fed. Reg. at 22430 n. 27. The SEC’s effort to distinguish Basic’s materiality test from Item 303’s disclosure requirement provides further support for the position that Item 303 requires more than Basic—what must be disclosed under Item 303 is not necessarily required under the standard in Basic. Therefore, “[b]ecause the materiality standards for Rule 10b5 and [Item 303] differ significantly, the ‘demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b–5. Such a duty to disclose must be separately shown.’” Oran, 226 F.3d at 288.
Item 303’s affirmative duty to disclose in Form 10–Qs can serve as the basis for a securities fraud claim under Section 10(b). Rule 10b–5 requires disclosure of “material fact[s] necessary in order to make … statements made … not misleading.” This Court and our sister circuits have long recognized that a duty to disclose under Section 10(b) can derive from statutes or regulations that obligate a party to speak…. And this conclusion stands to reason—for omitting an item required to be disclosed on a 10–Q can render that financial statement misleading…. Due to the obligatory nature of these regulations, a reasonable investor would interpret the absence of an Item 303 disclosure to imply the nonexistence of “known trends or uncertainties … that the registrant reasonably expects will have a material … unfavorable impact on ․ revenues or income from continuing operations.”… It follows that Item 303 imposes the type of duty to speak that can, in appropriate cases, give rise to liability under Section 10(b).
The failure to make a required disclosure under Item 303, however, is not by itself sufficient to state a claim for securities fraud under Section 10(b)…. Since the Supreme Court’s interpretation of “material” in Rule 10b–5 dictates whether a private plaintiff has properly stated a claim, we conclude that a violation of Item 303’s disclosure requirements can only sustain a claim under Section 10(b) and Rule 10b–5 if the allegedly omitted information satisfies Basic’s test for materiality. That is, a plaintiff must first allege that the defendant failed to comply with Item 303 in a 10–Q or other filing. Such a showing establishes that the defendant had a duty to disclose. A plaintiff must then allege that the omitted information was material under Basic‘s probability/magnitude test….
Stratte-McClure, slip op. at 14-20 (citations and footnotes omitted).
We note that our conclusion is at odds with the Ninth Circuit’s recent opinion in In re NVIDIA Corp. Securities Litigation…. That case held that Item 303’s disclosure duty is not actionable under Section 10(b) and Rule 10b–5, relying on a Third Circuit opinion by then-Judge Alito, Oran v. Stafford…. But Oran simply determined that, “[b]ecause the materiality standards for Rule 10b–5 and [Item 303] differ significantly,” a violation of Item 303 “does not automatically give rise to a material omission under Rule 10b–5” (emphasis added).… Having already decided that the omissions in that case were not material under Basic, the Third Circuit concluded that Item 303 could not “provide a basis for liability.”… Contrary to the Ninth Circuit’s implication that Oran compels a conclusion that Item 303 violations are never actionable under 10b–5, Oran actually suggested, without deciding, that in certain instances a violation of Item 303 could give rise to a material 10b–5 omission. At a minimum, Oran is consistent with our decision that failure to comply with Item 303 in a Form 10–Q can give rise to liability under Rule 10b–5 so long as the omission is material under Basic, and the other elements of Rule 10b–5 have been established.
It is possible that the differences between these decisions reflect the proverbial “distinction without a difference.” After all, the Stratte-McClure court requires that materiality be pleaded and proved in addition to a disclosure duty, which eventually may lead to the same result. But “eventually” can be a big word. The name of the game is these cases is surviving dismissal and getting into discovery. Materiality is a notably hard element on which to get a claim dismissed. Even scienter-based dismissals tend to be arduous litigated results with multiple amended complaints, and plaintiff’s counsel often manage to survive dismissal by presenting often dubious “confidential witness” allegations that prevent dismissal, even if they don’t stand up in discovery. Dismissing these cases will be much easier if the “duty to disclose” is understood to mean “duty to disclose material information,” as the NVIDIA (and arguably Oran) court ruled. That would require a disclosure duty in an omissions case to be founded in the substance of omitted material, and not just on a disclosure duty not founded in the importance to investors of the omitted information. The practical effect of the two different rules could be enormous, since the issue is not which side will win at trial, or even summary judgment, but will the case survive to the point that a hefty settlement may be the preferred result for both sides.
It is important to remember, as the Supreme Court has done in past private actions under section 10(b), that the section 10(b) private right of action was judicially created, and for that reason is more amenable to judicial interpretation and refinement than statutory causes of action. The Supreme Court has in the past, and likely will in the future, taken into account the policy implications of endorsing one approach or another in determining the precise parameters of the elements of private section 10(b) claims. In doing this, the Court may also place some weight on obvious efforts by the SEC and Congress to limit exposure to private actions from the forward-looking disclosure requirements. As a result, even if the Second Circuit’s disaggregation approach is arguably more sound from the standpoint of pure logic, the practical appeal of interpreting “duty to disclose” to include, at least implicitly, a materiality aspect could ultimately prevail.
This entry was posted in Private Litigation, Securities Law and tagged 17 CFR 229.303, 2d Circuit, 9th Circuit, Basic v. Levinson, CDO, CDS, class action, collateralized debt obligation, credit default swap, duty to disclose, Fjarde AP‐Fonden, Fjarde AP‐Fonden v. Morgan Stanley, forward-looking information, fradu by hindsight, fraud, In re NVIDIA Securities Regulation, Item 303, Item 303 Regulation S-K, Item 303(a)(3)(ii), legal analysis, management discussion and analysis, materiality, MD&A, Ninth Circuit, omissions, private securities litigation, PSLRA, Regulation S-K, Rule 10b-5, safe harbor, scienter, SEC Rule 303, Second Circuit, section 10(b), securities, Securities Exchange Act of 1934, securities fraud, securities law, securities litigation, soft information, Stratte McClure v. Morgan Stanley, Stratte-McClure on January 19, 2015 by Straight Arrow.
On December 11, 2014, Judge Lewis Kaplan ruled that his court lacked jurisdiction to consider Wing Chau’s injunctive action to prevent an SEC administrative prosecution against him on due process and equal protection grounds. Although the ruling was narrowly confined to the jurisdiction issue, it nevertheless was a significant victory for the Commission.
In October 2013, the SEC commenced an administrative proceeding against Chau and his firm, Harding Advisory, alleging misrepresentations in connection with the sale of collateralized debt obligations (“CDOs”) that imploded during the housing/mortgage crisis. The allegations essentially charged that Chau and Harding misrepresented the nature of the process for selecting assets that went into the CDOs. After seeking to work within the administrative process to get the kinds of discovery and preparation time that typically would be available if the action were brought in federal court, Chau and Harding commenced a federal action in the Southern District of New York to stop the administrative proceeding. They asserted in their complaint (which can be reviewed here: Wing Chau v. SEC), that the SEC administrative action violated due process because it did not allow a fair defense to be developed, and denied equal protection of the law because they were singled out for administrative prosecution when similar actions against other persons were brought in federal court (and two of three were lost by the SEC).
The court had previously denied a temporary restraining order and the administrative trial went forward and was concluded. The parties are awaiting an ALJ determination.
The threshold issue was whether such an action was permissible — whether the district court had jurisdiction to hear a claim to preempt the administrative action. Applying the standards set forth in Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994), Judge Kaplan ruled there was no jurisdiction because (1) the plaintiffs could get meaningful judicial review in an appeal of the administrative action, (2) the claimed constitutional violations were not wholly collateral to the issues to be decided in the administrative action, and (3) the consideration of due process and equal protection claims were not outside of the SEC’s “expertise.” A copy of the opinion can be found here: Chau v SEC Opinion.
The court found it significant that the due process claim “has been that the SEC’s procedural rules . . . are unfair in light of ‘facts and circumstances of [their] case'” and not that “the SEC’s rules are unconstitutional in every instance.” Slip op. at 18-19. The numerous grounds asserted to show that the respondents had been prevented from presenting a fair defense did not provide jurisdiction because they “all . . . are inextricably intertwined with [the] ongoing administrative proceeding and can be reviewed by a court of appeals.” Id. at 20. And because the challenges involve the day-to-day conduct of the proceeding, the due process arguments are not “wholly collateral” to the proceeding under Thunder Basin. Id. Finally, “plaintiffs fail to articulate any convincing reason why the SEC lacks the competence to consider the fairness of proceedings before its ALJs.” Id. at 22. The issue is the fairness of a particular hearing, not a determination that one of the SEC’s “constituent parts is unconstitutional,” and the “SEC is well equipped to evaluate claims of unfairness in proceedings before its ALJs — and if it fails to do so, the courts of appeals stand ready to correct the error.” Id. at 22-23.
The equal protection claim yielded the same result. Although a sister court found jurisdiction for such a claim in Gupta v. SEC, 796 F. Supp.2d 503 (S.D.N.Y. 2011), Judge Kaplan was not convinced to follow that decision. He found the Gupta allegations of discriminatory conduct stronger, but also did “not find Gupta‘s application fo the Thunder Basin factors persuasive in these circumstances.” Slip op. at 25. In essence, he disagrees with the reasoning in Gupta and relied on modestly different facts to rule the other way. He again also found no basis to conclude that the equal protection claim is outside of the SEC’s “expertise.” But he did so with a circular argument. He acknowledged that adjudicating such claims “is ‘not peculiarly within the SEC’s competence,'” but without addressing why equal protection analysis was within the SEC’s competence, stated that the SEC’s attempt to address the equal protection issues in an attempted interlocutory appeal from an ALJ decision “indicate that the SEC is competent to consider plaintiff’s constitutional claims.” Id. at 31-32.
At the end of the opinion, the judge noted that plaintiffs’ challenge “[t]aken to its logical conclusion . . . would upend all manner of administrative enforcement schemes.” Id. at 32. He concluded that because “the normal channels of statutory review are adequate” his court lacked subject matter jurisdiction.
In an epilogue, Judge Kaplan took note that “the growth of administrative adjudication, especially in preference to adjudication by Article III courts and perhaps particularly in the field of securities regulation, troubles some.” Id. at 34. He singled out concerns that this approach could “increase the role of the Commission in interpreting the securities laws to the detriment or exclusion of the long standing interpretive role of the courts.” This is a concern that has been raised by federal district judge Jed Rakoff (see here). He also mentions concern that such SEC determinations might be accorded “broad Chevron deference to SEC interpretations of the securities laws in the determination of administrative proceedings.” Id. at 34-35. Concern about the proper scope of Chevron deference to SEC statutory interpretations was noted recently by Justice Scalia (see here).
Judge Kaplan said “[t]hese concerns are legitimate, whether born of self-interest or of a personal assessment of whether the public interest would be served best by preserving the important interpretative role of Article III courts in construing the securities laws – a role courts have performed since 1933.” “But they do not affect the result in this case. . . . This Court’s role is a modest one” — to determine subject matter jurisdiction. Id. at 35. In reaching its conclusion, the court “has not considered any views concerning the proper or wise allocation of interpretive functions between the Commission and the courts,” which “are policy matters committed to the legislative and executive branches of government.” Id. at 35-36.
But there remains no doubt that this is an SEC victory that, at a minimum, delays consideration of some aspects of the propriety of shifting SEC enforcement actions to its own administrative courts (see posts on this issue here and here).
This entry was posted in SEC Enforcement, Securities Law and tagged administrative courts, administrative proceeding, ALJ, CDO, Chau v. SEC, Chevron deference, constitutionality, due process, equal protection, Harding Advisory, Judge Kaplan, jurisdiction, lawyer, legal analysis, Lewis Kaplan, Peixoto, Peixoto v. SEC, SEC, SEC enforcement, SEC v. Chau, section 10(b), securities, securities law, securities litigation, separation of powers, Stilwell, Stilwell v. SEC, subject matter jurisdiction, Wing Chau on December 15, 2014 by Straight Arrow.
On June 13, 2014, New York Supreme Court Judge Charles Ramos dismissed a private fraud action brought by investors, or assignees of investors, in residential mortgage-backed securities (RMBS). The case is Phoenix Light SF Ltd. v. The Goldman Sachs Group, Inc., No. 652356/13 (N.Y. Sup. Ct. June 13, 2014) (see the decision here). It was the right result because sophisticated investors should vet their investments carefully and not expect to be bailed out when they fail to do so.
RMBS are essentially certificates entitling the owners to payments by borrowers on mortgage loans purportedly made in a manner consistent with stated underwriting guidelines and packaged together in a single security. When the financial crisis hit, borrowers failed to pay at expected levels and investors did not receive their expected returns. The RMBS at issue in this case involved 23 different offerings in the period 2005-2007 totaling more than $450 million.
Plaintiffs alleged the usual assortment of materially false and misleading disclosures or omissions in the sale of the RMBS certificates. These include: (1) the loan originators (e.g., New Century, Countrywide, and the like) failed to comply with stated loan underwriting guidelines for the borrowers’ ability to pay and the assessed value of houses serving as collateral; (2) loan to value ratios on the underlying loans were misstated because they were based on inflated appraisals; (3) offering documents misstated the percentage of homes that were occupied by their owners; and (4) credit ratings on the RMBS were inflated. Plaintiffs alleged that Goldman Sachs knew from its own due diligence efforts that the loans were of poorer quality than represented, and for that reason sold short the RMBS being sold to investors.
The buyers of these RMBS were highly sophisticated investors. The entity that assigned many of these securities to plaintiffs (likely after the financial crisis began, for payments well below the face value of the original certificates) was WestLB AG, an established German bank and investment bank.
Media coverage of the housing crisis tends to follow the lead of politicians who bemoan the greed that led investment banks like Goldman Sachs to sell mortgage-backed securities, or other collateralized debt obligations (CDOs), based on poor quality mortgage loans. It is plain, however, that the market for these securities was highly sophisticated. They promised higher yields than other debt obligations, and were thought to be well-collateralized and diversified. Investment funds, pension funds, and the like, whose investments are (or should be) vetted by professionals experienced in the analysis of such investments, provided an eager market for them. These were not widows and orphans … they were the leading institutional investors of our time. Part of the failure of these investments is explained by the unprecedented nature of the financial crisis that occurred, which caused many market participants – buyers and sellers alike – to discount the likelihood of disastrous declines in housing value. But part of the failure is attributable to sophisticated investors that simply did not do their jobs. When the crisis hit and these investors suffered serious losses, they did what we have come to expect in our society – they looked for other people to point fingers at.
This is just such a case. Judge Ramos gave short shrift to several of the defendants’ legal arguments, then turned to the one that was dispositive, at least under New York law: sophisticated investors who fail to do the basic work required to choose appropriate investments cannot turn to the courts to make others the guarantors of their losses.
It is important to understand that when these huge investments are made, investors typically have the right to obtain a full list of the loans underlying the securities so that they can conduct their own analysis of loan quality, how well the loans conform to the underwriting guidelines, and how well risk is reduced by packaging together loans from diversified geographic areas. Many investors eager to get the projected high yields never did that homework. Plaintiffs in this case carefully alleged that “there was no information available to plaintiffs at the time they bought the certificates – other than the loan files, which defendants did not share – that would have allowed plaintiffs or the assigning entities to conduct an investigation that would have revealed” that the loans did not conform to underwriting standards. But plaintiffs did not allege that they had sought and been denied this information. If they had done so, it was standard practice to provide that information on request. See slip opinion at 15-16.
Here, plaintiffs need to sufficiently allege that defendants were the ones who possessed peculiar knowledge about the misrepresentations and omissions, and that plaintiffs could not have uncovered the misrepresentations and omissions even with reasonable due diligence…. [They fail] to meet the second prong, as the allegations of the complaint itself, actually establish that plaintiffs could have uncovered defendants’ alleged misrepresentations and omissions if they had exercised due diligence by asking for the loan files, which plaintiffs admit was information available at the time they bought the Certificates.
… It does not matter if the failure to seek this information was because of blind faith in the proves of origination and/or securitization, or if it was attributable to the desire to quickly get on board of what the investors thought was a profitable bandwagon, the obligation of a sophisticated investor to inquire cannot be merely excused.
It is strikingly refreshing to see the court recognize that sophisticated investors investing in highly sophisticated and complex securities have to act prudently under the circumstances, and if they fail to do so the courts are not there to prevent appropriate lessons from being learned.
This entry was posted in Private Litigation, Securities Law and tagged CDO, fraud, lawyer, legal analysis, Phoenix Light SF v. Goldman Sachs, private securities litigation, reasonable reliance, RMBS, securities, securities fraud, securities law, securities litigation on June 17, 2014 by Straight Arrow.
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The Second Circuit ’s recent decision in Stratte - McClure v. Morgan Stanley , No . 13 - 0627 - cv ( Jan. 12 , 2015 ) ( 2015 WL 13631 ) ( slip opinion available here : Stratte - McClure v. Morgan Stanley ) ( also referred to as Fjarde AP‐Fonden v. Morgan Stanley ) , stirs the pot on the important issue of private section 10(b ) claims based on alleged violations of Item 303 of SEC Regulation S - K , 17 CFR § 229.303 . Claims founded on a purported failure to comply with Item 303 are problematic because Item 303 is the SEC ’s effort to enhance disclosures of “ soft information , ” not historical facts , about a public company . It requires that a company evaluate and discuss the future prospect that some developments or uncertainties could be important in future company performance . Because such decisions ( i ) inevitably involve the exercise of management judgment the need for disclosure , and the nature and scope any such discussion , and ( ii ) are almost always subject to second - guessing in retrospect , when the future is revealed and the uncertainties become less uncertain , they present serious risks of converting private section 10(b ) claims into a form of hindsight insurance against stock price declines .
 The SEC at one time excluded forward - looking information from SEC filings , but about 40 years ago started to encourage companies to provide forward - looking information in SEC filings . This eventually led to the development of mandatory disclosure requirements of “ MD&A , ” the short term for the Management Discussion and Analysis of Financial Condition and Results of Operations required by Item 303 .
 Item 303 arose out of SEC concerns that investors were missing out on key elements of company information if they obtained only purely historical information . Informed investment decision - making could be greatly improved if investors were able to get management insights into areas of company risk and uncertainty that had not yet been realized . This type of non - historical , future - looking evaluation is often referred to as “ soft information . ” The area of soft information disclosure is problematic because the SEC wants to encourage management to share such evaluative analysis , but to do so in a way that does not expand company and management exposure for not reading the future correctly . Accordingly , along with developing rules encouraging such disclosure , the SEC , Congress , and the courts have taken steps to limit private securities claims based solely on allegedly inadequate forward - looking disclosures .
 The SEC adopted so - called “ safe harbor ” rules ( Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934 ) , under which a forward - looking statement in a company ’s MD&A disclosures could not be found fraudulent absent proof that it “ was made or reaffirmed without a reasonable basis or was disclosed other than in good faith . ” In the Private Securities Litigation Reform Act of 1995 ( PSLRA ) , Congress enacted a more general safe harbor precluding liability in private actions for a forward - looking statement if : ( i ) it is identified as such and accompanied by “ meaningful cautionary statements identifying important factors that could cause actual results to differ materially , ” or ( ii ) immaterial , or ( iii ) the plaintiff fails to prove that the forward - looking statement was made “ with actual knowledge . . . that the statement was false or misleading . ” 15 U.S.C. § 78u-5(c ) . The first portion of this statutory safe harbor was effectively a legislative adoption of the judicially - created “ bespeaks caution ” doctrine under which a forward - looking statement accompanied by meaningful cautionary language was deemed immaterial as a matter of law .
 Nevertheless , forward - looking statements that turn out to be inaccurate , or the failure to provide advance warning of a likely future impact of a current problem , has been a theory underlying private securities actions for decades . Because this allows a backward - looking theory of fraud to be pursued after events occurring after the alleged misleading statements or omissions are accompanied by significant stock price impact , it is a powerful lure for the plaintiffs ’ class action bar .
 This theory can be especially powerful in the context of so - called “ material omissions . ” In those cases , the plaintiff can seek damages supposedly arising out of a company ’s failure to provide a prediction about the future – the failure to disclose the potential impact of facts or circumstances that later turn out to harm the company . The most difficult hurdle in these cases is finding a “ duty to disclose . ” The securities laws do not require the disclosure of all company information to investors , nor even all material company information . Instead , public companies are required to disclose only the specified information mandated in SEC regulations , and to ensure that when they do disclose information , they do not at the same time withhold information without which the disclosed information becomes misleading . In general , companies have no obligation to provide evaluations or predictions about possible future developments , so this “ duty to disclose ” requirement can be a major obstacle to a private securities action based on a failure to do so .
 It is in this context that recent cases have considered the impact on private securities actions of Item 303 of Regulation S - K. Two recent appellate cases adopt very different approaches to this issue : the Second Circuit ’s decision in Stratte - McClure and the Ninth Circuit ’s decision in In re NVIDIA Corp. Sec . Litig . , 768 F.3d 1046 ( 9th Cir . 2014 ) . It is no exaggeration to say that billions of dollars of future litigation costs and liabilities may turn on which of these approaches ultimately prevails .
 Describe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations . If the registrant knows of events that will cause a material change in the relationship between costs and revenues ( such as known future increases in costs of labor or materials or price increases or inventory adjustments ) , the change in the relationship shall be disclosed .
 ( 1 ) Is the known trend , demand , commitment , event or uncertainty likely to come to fruition ? If management determines that it is not reasonably likely to occur , no disclosure is required .
 ( 2 ) If management can not make that determination , it must evaluate objectively the consequences of the known trend , demand , commitment , event or uncertainty , on the assumption that it will come to fruition . Disclosure is then required unless management determines that a material effect on the registrant ’s financial condition or results of operations is not reasonably likely to occur .
 Exchange Act Release No . 34–26831 ( May 24 , 1989 ) .
 NVIDIA involved the company ’s alleged failure to include in its Item 303 MD&A disclosures the potential financial impact of a defect in a chip incorporated into various manufacturers ’ computers and other devices . Although the existence of the defect was disclosed , the amounts to be paid under warranty obligations were allegedly known uncertainties , and the MD&A allegedly failed to include a required discussion of that prospect . Stratte - McClure involved the alleged failure by Morgan Stanley to include in its MD&A a discussion of the potential future financial impact of long positions it held on collateralized debt obligations or credit default swaps at the time of the housing mortgage meltdown .
 Let ’s start with a key point on which both courts agree . They both emphasize that information required to be disclosed under Item 303 may not satisfy one of the key elements of a section 10(b ) claim : materiality . That is because the SEC instructions make it clear that disclosures may be required “ unless management determines that a material effect . . . is not reasonably likely to occur ” ( emphasis added ) . As a result , disclosures of immaterial information are required if management can not “ determine ” they are unlikely to have a future material impact . Accordingly , plaintiffs will still have the burden of pleading facts showing a required disclosure was , in fact , material . See NVIDIA , 768 F.3d at 1055 ; Stratte - McClure , slip op . at 18 - 19 .
 The difference between the courts – a critical one – is that the NVIDIA court concluded that Item 303 ’s requirement that certain immaterial information must be disclosed prevents it from creating the “ duty to disclose ” necessary to support a fraud claim under section 10(b ) , while the Stratte - McClure court concluded that the “ duty to disclose ” and materiality elements should be disaggregated for this purpose .
 [ I]n Basic , the Supreme Court stated that materiality of forward - looking information depends “ upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity . ” . . . As the court in Oran also determined , these two standards differ considerably . 226 F.3d at 288 . Management ’s duty to disclose under Item 303 is much broader than what is required under the standard pronounced in Basic . The SEC intimated this point as well : “ [ Item 303 ] mandates disclosure of specified forward - looking information , and specifies its own standard for disclosure — i.e. , reasonably likely to have a material effect … . The probability / magnitude test for materiality approved by the Supreme Court in [ Basic ] is inapposite to Item 303 disclosure . ” Exchange Act Release No . 34 - 26831 , 54 Fed . Reg . at 22430 n. 27 . The SEC ’s effort to distinguish Basic ’s materiality test from Item 303 ’s disclosure requirement provides further support for the position that Item 303 requires more than Basic — what must be disclosed under Item 303 is not necessarily required under the standard in Basic . Therefore , “ [ b]ecause the materiality standards for Rule 10b5 and [ Item 303 ] differ significantly , the ‘ demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b–5 . Such a duty to disclose must be separately shown . ’ ” Oran , 226 F.3d at 288 .
 Item 303 ’s affirmative duty to disclose in Form 10 – Qs can serve as the basis for a securities fraud claim under Section 10(b ) . Rule 10b–5 requires disclosure of “ material fact[s ] necessary in order to make … statements made … not misleading . ” This Court and our sister circuits have long recognized that a duty to disclose under Section 10(b ) can derive from statutes or regulations that obligate a party to speak … . And this conclusion stands to reason — for omitting an item required to be disclosed on a 10 – Q can render that financial statement misleading … . Due to the obligatory nature of these regulations , a reasonable investor would interpret the absence of an Item 303 disclosure to imply the nonexistence of “ known trends or uncertainties … that the registrant reasonably expects will have a material … unfavorable impact on ․ revenues or income from continuing operations . ” … It follows that Item 303 imposes the type of duty to speak that can , in appropriate cases , give rise to liability under Section 10(b ) .
 The failure to make a required disclosure under Item 303 , however , is not by itself sufficient to state a claim for securities fraud under Section 10(b ) … . Since the Supreme Court ’s interpretation of “ material ” in Rule 10b–5 dictates whether a private plaintiff has properly stated a claim , we conclude that a violation of Item 303 ’s disclosure requirements can only sustain a claim under Section 10(b ) and Rule 10b–5 if the allegedly omitted information satisfies Basic ’s test for materiality . That is , a plaintiff must first allege that the defendant failed to comply with Item 303 in a 10 – Q or other filing . Such a showing establishes that the defendant had a duty to disclose . A plaintiff must then allege that the omitted information was material under Basic‘s probability / magnitude test … .
 Stratte - McClure , slip op . at 14 - 20 ( citations and footnotes omitted ) .
 We note that our conclusion is at odds with the Ninth Circuit ’s recent opinion in In re NVIDIA Corp. Securities Litigation … . That case held that Item 303 ’s disclosure duty is not actionable under Section 10(b ) and Rule 10b–5 , relying on a Third Circuit opinion by then - Judge Alito , Oran v. Stafford … . But Oran simply determined that , “ [ b]ecause the materiality standards for Rule 10b–5 and [ Item 303 ] differ significantly , ” a violation of Item 303 “ does not automatically give rise to a material omission under Rule 10b–5 ” ( emphasis added ) . … Having already decided that the omissions in that case were not material under Basic , the Third Circuit concluded that Item 303 could not “ provide a basis for liability . ” … Contrary to the Ninth Circuit ’s implication that Oran compels a conclusion that Item 303 violations are never actionable under 10b–5 , Oran actually suggested , without deciding , that in certain instances a violation of Item 303 could give rise to a material 10b–5 omission . At a minimum , Oran is consistent with our decision that failure to comply with Item 303 in a Form 10 – Q can give rise to liability under Rule 10b–5 so long as the omission is material under Basic , and the other elements of Rule 10b–5 have been established .
 It is possible that the differences between these decisions reflect the proverbial “ distinction without a difference . ” After all , the Stratte - McClure court requires that materiality be pleaded and proved in addition to a disclosure duty , which eventually may lead to the same result . But “ eventually ” can be a big word . The name of the game is these cases is surviving dismissal and getting into discovery . Materiality is a notably hard element on which to get a claim dismissed . Even scienter - based dismissals tend to be arduous litigated results with multiple amended complaints , and plaintiff ’s counsel often manage to survive dismissal by presenting often dubious “ confidential witness ” allegations that prevent dismissal , even if they do n’t stand up in discovery . Dismissing these cases will be much easier if the “ duty to disclose ” is understood to mean “ duty to disclose material information , ” as the NVIDIA ( and arguably Oran ) court ruled . That would require a disclosure duty in an omissions case to be founded in the substance of omitted material , and not just on a disclosure duty not founded in the importance to investors of the omitted information . The practical effect of the two different rules could be enormous , since the issue is not which side will win at trial , or even summary judgment , but will the case survive to the point that a hefty settlement may be the preferred result for both sides .
 It is important to remember , as the Supreme Court has done in past private actions under section 10(b ) , that the section 10(b ) private right of action was judicially created , and for that reason is more amenable to judicial interpretation and refinement than statutory causes of action . The Supreme Court has in the past , and likely will in the future , taken into account the policy implications of endorsing one approach or another in determining the precise parameters of the elements of private section 10(b ) claims . In doing this , the Court may also place some weight on obvious efforts by the SEC and Congress to limit exposure to private actions from the forward - looking disclosure requirements . As a result , even if the Second Circuit ’s disaggregation approach is arguably more sound from the standpoint of pure logic , the practical appeal of interpreting “ duty to disclose ” to include , at least implicitly , a materiality aspect could ultimately prevail .
 This entry was posted in Private Litigation , Securities Law and tagged 17 CFR 229.303 , 2d Circuit , 9th Circuit , Basic v. Levinson , CDO , CDS , class action , collateralized debt obligation , credit default swap , duty to disclose , Fjarde AP‐Fonden , Fjarde AP‐Fonden v. Morgan Stanley , forward - looking information , fradu by hindsight , fraud , In re NVIDIA Securities Regulation , Item 303 , Item 303 Regulation S - K , Item 303(a)(3)(ii ) , legal analysis , management discussion and analysis , materiality , MD&A , Ninth Circuit , omissions , private securities litigation , PSLRA , Regulation S - K , Rule 10b-5 , safe harbor , scienter , SEC Rule 303 , Second Circuit , section 10(b ) , securities , Securities Exchange Act of 1934 , securities fraud , securities law , securities litigation , soft information , Stratte McClure v. Morgan Stanley , Stratte - McClure on January 19 , 2015 by Straight Arrow .
 On December 11 , 2014 , Judge Lewis Kaplan ruled that his court lacked jurisdiction to consider Wing Chau ’s injunctive action to prevent an SEC administrative prosecution against him on due process and equal protection grounds . Although the ruling was narrowly confined to the jurisdiction issue , it nevertheless was a significant victory for the Commission .
 In October 2013 , the SEC commenced an administrative proceeding against Chau and his firm , Harding Advisory , alleging misrepresentations in connection with the sale of collateralized debt obligations ( “ CDOs ” ) that imploded during the housing / mortgage crisis . The allegations essentially charged that Chau and Harding misrepresented the nature of the process for selecting assets that went into the CDOs . After seeking to work within the administrative process to get the kinds of discovery and preparation time that typically would be available if the action were brought in federal court , Chau and Harding commenced a federal action in the Southern District of New York to stop the administrative proceeding . They asserted in their complaint ( which can be reviewed here : Wing Chau v. SEC ) , that the SEC administrative action violated due process because it did not allow a fair defense to be developed , and denied equal protection of the law because they were singled out for administrative prosecution when similar actions against other persons were brought in federal court ( and two of three were lost by the SEC ) .
 The court had previously denied a temporary restraining order and the administrative trial went forward and was concluded . The parties are awaiting an ALJ determination .
 The threshold issue was whether such an action was permissible — whether the district court had jurisdiction to hear a claim to preempt the administrative action . Applying the standards set forth in Thunder Basin Coal Co. v. Reich , 510 U.S. 200 ( 1994 ) , Judge Kaplan ruled there was no jurisdiction because ( 1 ) the plaintiffs could get meaningful judicial review in an appeal of the administrative action , ( 2 ) the claimed constitutional violations were not wholly collateral to the issues to be decided in the administrative action , and ( 3 ) the consideration of due process and equal protection claims were not outside of the SEC ’s “ expertise . ” A copy of the opinion can be found here : Chau v SEC Opinion .
 The court found it significant that the due process claim “ has been that the SEC ’s procedural rules . . . are unfair in light of ‘ facts and circumstances of [ their ] case ' ” and not that “ the SEC ’s rules are unconstitutional in every instance . ” Slip op . at 18 - 19 . The numerous grounds asserted to show that the respondents had been prevented from presenting a fair defense did not provide jurisdiction because they “ all . . . are inextricably intertwined with [ the ] ongoing administrative proceeding and can be reviewed by a court of appeals . ” Id. at 20 . And because the challenges involve the day - to - day conduct of the proceeding , the due process arguments are not “ wholly collateral ” to the proceeding under Thunder Basin . Id. Finally , “ plaintiffs fail to articulate any convincing reason why the SEC lacks the competence to consider the fairness of proceedings before its ALJs . ” Id. at 22 . The issue is the fairness of a particular hearing , not a determination that one of the SEC ’s “ constituent parts is unconstitutional , ” and the “ SEC is well equipped to evaluate claims of unfairness in proceedings before its ALJs — and if it fails to do so , the courts of appeals stand ready to correct the error . ” Id. at 22 - 23 .
 The equal protection claim yielded the same result . Although a sister court found jurisdiction for such a claim in Gupta v. SEC , 796 F. Supp.2d 503 ( S.D.N.Y. 2011 ) , Judge Kaplan was not convinced to follow that decision . He found the Gupta allegations of discriminatory conduct stronger , but also did “ not find Gupta‘s application fo the Thunder Basin factors persuasive in these circumstances . ” Slip op . at 25 . In essence , he disagrees with the reasoning in Gupta and relied on modestly different facts to rule the other way . He again also found no basis to conclude that the equal protection claim is outside of the SEC ’s “ expertise . ” But he did so with a circular argument . He acknowledged that adjudicating such claims “ is ‘ not peculiarly within the SEC ’s competence , ' ” but without addressing why equal protection analysis was within the SEC ’s competence , stated that the SEC ’s attempt to address the equal protection issues in an attempted interlocutory appeal from an ALJ decision “ indicate that the SEC is competent to consider plaintiff ’s constitutional claims . ” Id. at 31 - 32 .
 At the end of the opinion , the judge noted that plaintiffs ’ challenge “ [ t]aken to its logical conclusion . . . would upend all manner of administrative enforcement schemes . ” Id. at 32 . He concluded that because “ the normal channels of statutory review are adequate ” his court lacked subject matter jurisdiction .
 In an epilogue , Judge Kaplan took note that “ the growth of administrative adjudication , especially in preference to adjudication by Article III courts and perhaps particularly in the field of securities regulation , troubles some . ” Id. at 34 . He singled out concerns that this approach could “ increase the role of the Commission in interpreting the securities laws to the detriment or exclusion of the long standing interpretive role of the courts . ” This is a concern that has been raised by federal district judge Jed Rakoff ( see here ) . He also mentions concern that such SEC determinations might be accorded “ broad Chevron deference to SEC interpretations of the securities laws in the determination of administrative proceedings . ” Id. at 34 - 35 . Concern about the proper scope of Chevron deference to SEC statutory interpretations was noted recently by Justice Scalia ( see here ) .
 Judge Kaplan said “ [ t]hese concerns are legitimate , whether born of self - interest or of a personal assessment of whether the public interest would be served best by preserving the important interpretative role of Article III courts in construing the securities laws – a role courts have performed since 1933 . ” “ But they do not affect the result in this case . . . . This Court ’s role is a modest one ” — to determine subject matter jurisdiction . Id. at 35 . In reaching its conclusion , the court “ has not considered any views concerning the proper or wise allocation of interpretive functions between the Commission and the courts , ” which “ are policy matters committed to the legislative and executive branches of government . ” Id. at 35 - 36 .
 But there remains no doubt that this is an SEC victory that , at a minimum , delays consideration of some aspects of the propriety of shifting SEC enforcement actions to its own administrative courts ( see posts on this issue here and here ) .
 This entry was posted in SEC Enforcement , Securities Law and tagged administrative courts , administrative proceeding , ALJ , CDO , Chau v. SEC , Chevron deference , constitutionality , due process , equal protection , Harding Advisory , Judge Kaplan , jurisdiction , lawyer , legal analysis , Lewis Kaplan , Peixoto , Peixoto v. SEC , SEC , SEC enforcement , SEC v. Chau , section 10(b ) , securities , securities law , securities litigation , separation of powers , Stilwell , Stilwell v. SEC , subject matter jurisdiction , Wing Chau on December 15 , 2014 by Straight Arrow .
 On June 13 , 2014 , New York Supreme Court Judge Charles Ramos dismissed a private fraud action brought by investors , or assignees of investors , in residential mortgage - backed securities ( RMBS ) . The case is Phoenix Light SF Ltd. v. The Goldman Sachs Group , Inc. , No . 652356/13 ( N.Y. Sup . Ct . June 13 , 2014 ) ( see the decision here ) . It was the right result because sophisticated investors should vet their investments carefully and not expect to be bailed out when they fail to do so .
 RMBS are essentially certificates entitling the owners to payments by borrowers on mortgage loans purportedly made in a manner consistent with stated underwriting guidelines and packaged together in a single security . When the financial crisis hit , borrowers failed to pay at expected levels and investors did not receive their expected returns . The RMBS at issue in this case involved 23 different offerings in the period 2005 - 2007 totaling more than $ 450 million .
 Plaintiffs alleged the usual assortment of materially false and misleading disclosures or omissions in the sale of the RMBS certificates . These include : ( 1 ) the loan originators ( e.g. , New Century , Countrywide , and the like ) failed to comply with stated loan underwriting guidelines for the borrowers ’ ability to pay and the assessed value of houses serving as collateral ; ( 2 ) loan to value ratios on the underlying loans were misstated because they were based on inflated appraisals ; ( 3 ) offering documents misstated the percentage of homes that were occupied by their owners ; and ( 4 ) credit ratings on the RMBS were inflated . Plaintiffs alleged that Goldman Sachs knew from its own due diligence efforts that the loans were of poorer quality than represented , and for that reason sold short the RMBS being sold to investors .
 The buyers of these RMBS were highly sophisticated investors . The entity that assigned many of these securities to plaintiffs ( likely after the financial crisis began , for payments well below the face value of the original certificates ) was WestLB AG , an established German bank and investment bank .
 Media coverage of the housing crisis tends to follow the lead of politicians who bemoan the greed that led investment banks like Goldman Sachs to sell mortgage - backed securities , or other collateralized debt obligations ( CDOs ) , based on poor quality mortgage loans . It is plain , however , that the market for these securities was highly sophisticated . They promised higher yields than other debt obligations , and were thought to be well - collateralized and diversified . Investment funds , pension funds , and the like , whose investments are ( or should be ) vetted by professionals experienced in the analysis of such investments , provided an eager market for them . These were not widows and orphans … they were the leading institutional investors of our time . Part of the failure of these investments is explained by the unprecedented nature of the financial crisis that occurred , which caused many market participants – buyers and sellers alike – to discount the likelihood of disastrous declines in housing value . But part of the failure is attributable to sophisticated investors that simply did not do their jobs . When the crisis hit and these investors suffered serious losses , they did what we have come to expect in our society – they looked for other people to point fingers at .
 This is just such a case . Judge Ramos gave short shrift to several of the defendants ’ legal arguments , then turned to the one that was dispositive , at least under New York law : sophisticated investors who fail to do the basic work required to choose appropriate investments can not turn to the courts to make others the guarantors of their losses .
 It is important to understand that when these huge investments are made , investors typically have the right to obtain a full list of the loans underlying the securities so that they can conduct their own analysis of loan quality , how well the loans conform to the underwriting guidelines , and how well risk is reduced by packaging together loans from diversified geographic areas . Many investors eager to get the projected high yields never did that homework . Plaintiffs in this case carefully alleged that “ there was no information available to plaintiffs at the time they bought the certificates – other than the loan files , which defendants did not share – that would have allowed plaintiffs or the assigning entities to conduct an investigation that would have revealed ” that the loans did not conform to underwriting standards . But plaintiffs did not allege that they had sought and been denied this information . If they had done so , it was standard practice to provide that information on request . See slip opinion at 15 - 16 .
 Here , plaintiffs need to sufficiently allege that defendants were the ones who possessed peculiar knowledge about the misrepresentations and omissions , and that plaintiffs could not have uncovered the misrepresentations and omissions even with reasonable due diligence … . [ They fail ] to meet the second prong , as the allegations of the complaint itself , actually establish that plaintiffs could have uncovered defendants ’ alleged misrepresentations and omissions if they had exercised due diligence by asking for the loan files , which plaintiffs admit was information available at the time they bought the Certificates .
 … It does not matter if the failure to seek this information was because of blind faith in the proves of origination and/or securitization , or if it was attributable to the desire to quickly get on board of what the investors thought was a profitable bandwagon , the obligation of a sophisticated investor to inquire can not be merely excused .
 It is strikingly refreshing to see the court recognize that sophisticated investors investing in highly sophisticated and complex securities have to act prudently under the circumstances , and if they fail to do so the courts are not there to prevent appropriate lessons from being learned .
 This entry was posted in Private Litigation , Securities Law and tagged CDO , fraud , lawyer , legal analysis , Phoenix Light SF v. Goldman Sachs , private securities litigation , reasonable reliance , RMBS , securities , securities fraud , securities law , securities litigation on June 17 , 2014 by Straight Arrow .
 Bloomberg View : No Kangaroo Courts at the SEC , Please !
 Is it Time To Broaden the Definition of Insider Trading ?
 The Empire of Edge : How a doctor , a trader , and the billionaire Steven A. Cohen got entangled in a vast financial scandal .
 Tippees Turn on Tipper in Insider Trading Investigation – And the Tipper 's Penalty is Based on Their Profits !
 “ Loser Pays ” : Who Will Be The Biggest Loser ?
 Is the SEC Becoming a Law Unto Itself ?
 Obus Says SEC Attorneys Are " Bullies "
 Should Old Subpoena Compliance Rules Apply in the Digital Age ?
 High Frequency Trading : Is It A Dark Force Against Ordinary Human Traders And Investors ?


text:
Center screw (idle position screw): 4 full turns from fully closed.
Right screw (air mixture bleed screw): 3 and 5/8 turns from fully closed.
Use the tapered needle (A 8), installed with the clip in the center notch position.
Use the #90 or #92 main jet, depending on your bike's level of modification. You may need to change this jet further, if you are unable to obtain satisfactory tuning results. Consider acquiring even number jets to 100 for general tuning purposes.
Note: These are rough initial settings ONLY. You MUST properly tune the carb to YOUR bike by testing and riding the bike, to properly determine correct jetting and needle placement. Jetting should be verified by "e;reading"e; the spark plug (see the TechFAQ - Mid-South MiniMoto Tech FAQ for more info on reading your plug).
Failure to verify mixture settings may result in a lean condition, and cause engine failure.
To lean the mixture at lower RPMs, lower the needle further into the jet, by raising the clip's position on the needle. To richen the "e;bottom end"e;, raise the needle further out of the jet, by lowering the clip.
The black knob is the choke, you must pull up and turn the knob ¼ turn to set the choke. Release is NOT automatic, you must release the choke manually. In later model packaging for this carburetor, the choke mechanism must be user-installed (it comes in a small parts bag).
The fuel inlet line fitting is located next to the choke knob. The small hose dangling from the carb is a vent hose. You may route this hose to a vent canister if desired, or required for racing. The fitting adjacent to the vent hose should be capped. Do not uncap any vacuum fittings that come capped.
It is not necessary to cap the two left-most fittings across from the vent hose (these exposed vacuum fittings are unused in this application, and do not open to the inside of the carb). The brass fitting located at 12 O'clock on the manifold side of the carb should be capped. Later model packaging includes the cap for this fitting in the small parts bag. Be sure to install the cap, if it is not already fitted.
Use the appropriate chrome cable guide elbow for your application (you will likely need to install the shorter one). Be careful when installing or removing them not to put any side-loads on the tubes - they are made of BRASS, and can bend or break if mishandled.
Mid-South Minimoto stocks a full range of jets to fit the 17.5 mm carb should you require something beyond the scope of the jets enclosed with the kit.

tokenized:
Center screw ( idle position screw ): 4 full turns from fully closed .
 Right screw ( air mixture bleed screw ): 3 and 5/8 turns from fully closed .
 Use the tapered needle ( A 8) , installed with the clip in the center notch position .
 Use the # 90 or # 92 main jet , depending on your bike's level of modification . You may need to change this jet further , if you are unable to obtain satisfactory tuning results . Consider acquiring even number jets to 100 for general tuning purposes .
 Note : These are rough initial settings ONLY . You MUST properly tune the carb to YOUR bike by testing and riding the bike , to properly determine correct jetting and needle placement . Jetting should be verified by " e;reading"e ; the spark plug ( see the TechFAQ - Mid - South MiniMoto Tech FAQ for more info on reading your plug ) .
 Failure to verify mixture settings may result in a lean condition , and cause engine failure .
 To lean the mixture at lower RPMs , lower the needle further into the jet , by raising the clip's position on the needle . To richen the " e;bottom end"e ; , raise the needle further out of the jet , by lowering the clip .
 The black knob is the choke , you must pull up and turn the knob ¼ turn to set the choke . Release is NOT automatic , you must release the choke manually . In later model packaging for this carburetor , the choke mechanism must be user - installed ( it comes in a small parts bag ) .
 The fuel inlet line fitting is located next to the choke knob . The small hose dangling from the carb is a vent hose . You may route this hose to a vent canister if desired , or required for racing . The fitting adjacent to the vent hose should be capped . Do not uncap any vacuum fittings that come capped .
 It is not necessary to cap the two left - most fittings across from the vent hose ( these exposed vacuum fittings are unused in this application , and do not open to the inside of the carb ) . The brass fitting located at 12 O'clock on the manifold side of the carb should be capped . Later model packaging includes the cap for this fitting in the small parts bag . Be sure to install the cap , if it is not already fitted .
 Use the appropriate chrome cable guide elbow for your application ( you will likely need to install the shorter one ) . Be careful when installing or removing them not to put any side - loads on the tubes - they are made of BRASS , and can bend or break if mishandled .
 Mid - South Minimoto stocks a full range of jets to fit the 17.5 mm carb should you require something beyond the scope of the jets enclosed with the kit .


text:
The Food and Drug Administration has approved Tecentriq (atezolizumab) for use in combination with Avastin (bevacizumab), carboplatin, paclitaxel, the treatment combination known as ABCP, for the first-line treatment of patients with metastatic nonsquamous non-small cell lung cancer (NSCLC).
The Food and Drug Administration (FDA) has approved Tecentriq (atezolizumab) for use in combination with Avastin (bevacizumab), carboplatin, paclitaxel, the treatment combination known as ABCP, for the first-line treatment of patients with metastatic nonsquamous non-small cell lung cancer (NSCLC). This indication excludes patients with EGFR/ALK aberrations.
The approval was based on findings from the phase 3 IMpower150 trial, in which the ABCP regimen reduced the risk of death by 22 percent compared with Avastin and chemotherapy (BCP) in patients with advanced wild-type NSCLC.
Results showed that the median overall survival (OS) with the addition of Tecentriq was 19.2 months compared with 14.7 months in the BCP group. Moreover, the 24-month OS rate with Tecentriq was 43 percent compared with 34 percent for BCP. ABCP also improved median progression-free survival (PFS) by 1.5 months compared with BCP (8.3 vs 6.8 months).
The trial was designed to exclude data for patients with EGFR/ALK-mutated NSCLC from the co-primary endpoints of OS and PFS. Approximately 13 percent of the trials participants were EGFR or ALK-positive. Prior to study entry, these patients had received at least one prior EGFR TKI.
When patients with EGFR/ALK alterations were included in the intent-to-treat population, the median OS with ABCP jumped to 19.8 months compared with 14.9 months for BCP. Better than expected survival was also seen in patients with liver metastases.
Added efficacy for both groups correlated with the addition of the VEGF inhibitor Avastin and Tecentriq. In a separate cohort of the study looking at Tecentriq plus carboplatin and paclitaxel (ACP) there was a less pronounced improvement compared with BCP. In the EGFR/ALK-positive group, the objective response rate (ORR) was 56 percent with ABCP compared with 40 percent with ACP and 41 percent with BCP.
There was a 46 percent reduction in the risk of death with ABCP compared with BCP for patients with liver metastases and a 46 percent reduction in the risk of death for patients with EGFR/ALK-mutated NSCLC. The risk of death was reduced by 15 percent and 18 percent for patients with liver metastases and EGFR/ALK alterations, respectively.
Treatment-related grade 3 or 4 side effects occurred in 43 percent of patients in the ACP group and for 57 percent and 49 percent of those in the ABCP and BCP arms, respectively. Serious adverse events occurred in 39 percent, 44 percent and 34 percent of patients in the ACP, ABCP and BCP groups. The most common grade 3/4 immune-related side effects were rash and hepatitis.

tokenized:
The Food and Drug Administration has approved Tecentriq ( atezolizumab ) for use in combination with Avastin ( bevacizumab ) , carboplatin , paclitaxel , the treatment combination known as ABCP , for the first - line treatment of patients with metastatic nonsquamous non - small cell lung cancer ( NSCLC ) .
 The Food and Drug Administration ( FDA ) has approved Tecentriq ( atezolizumab ) for use in combination with Avastin ( bevacizumab ) , carboplatin , paclitaxel , the treatment combination known as ABCP , for the first - line treatment of patients with metastatic nonsquamous non - small cell lung cancer ( NSCLC ) . This indication excludes patients with EGFR / ALK aberrations .
 The approval was based on findings from the phase 3 IMpower150 trial , in which the ABCP regimen reduced the risk of death by 22 percent compared with Avastin and chemotherapy ( BCP ) in patients with advanced wild - type NSCLC .
 Results showed that the median overall survival ( OS ) with the addition of Tecentriq was 19.2 months compared with 14.7 months in the BCP group . Moreover , the 24 - month OS rate with Tecentriq was 43 percent compared with 34 percent for BCP . ABCP also improved median progression - free survival ( PFS ) by 1.5 months compared with BCP ( 8.3 vs 6.8 months ) .
 The trial was designed to exclude data for patients with EGFR / ALK - mutated NSCLC from the co - primary endpoints of OS and PFS . Approximately 13 percent of the trials participants were EGFR or ALK - positive . Prior to study entry , these patients had received at least one prior EGFR TKI .
 When patients with EGFR / ALK alterations were included in the intent - to - treat population , the median OS with ABCP jumped to 19.8 months compared with 14.9 months for BCP . Better than expected survival was also seen in patients with liver metastases .
 Added efficacy for both groups correlated with the addition of the VEGF inhibitor Avastin and Tecentriq . In a separate cohort of the study looking at Tecentriq plus carboplatin and paclitaxel ( ACP ) there was a less pronounced improvement compared with BCP . In the EGFR / ALK - positive group , the objective response rate ( ORR ) was 56 percent with ABCP compared with 40 percent with ACP and 41 percent with BCP .
 There was a 46 percent reduction in the risk of death with ABCP compared with BCP for patients with liver metastases and a 46 percent reduction in the risk of death for patients with EGFR / ALK - mutated NSCLC . The risk of death was reduced by 15 percent and 18 percent for patients with liver metastases and EGFR / ALK alterations , respectively .
 Treatment - related grade 3 or 4 side effects occurred in 43 percent of patients in the ACP group and for 57 percent and 49 percent of those in the ABCP and BCP arms , respectively . Serious adverse events occurred in 39 percent , 44 percent and 34 percent of patients in the ACP , ABCP and BCP groups . The most common grade 3/4 immune - related side effects were rash and hepatitis .


text: Billy is called to catch a tenacious red fox trapped in a family playroom. Then Billy and Ricky kick it into double-time, as they are called to extract an enormous alligator turtle that threatens a property full of workers and children. The Bretherton boys have to figure out how to move a heavyweight snapping turtle–without losing any fingers.

tokenized: Billy is called to catch a tenacious red fox trapped in a family playroom . Then Billy and Ricky kick it into double - time , as they are called to extract an enormous alligator turtle that threatens a property full of workers and children . The Bretherton boys have to figure out how to move a heavyweight snapping turtle – without losing any fingers .


text:
Is a bunny for me?
Bunnies are great fun and are very sociable. They can also be very affectionate, but they are not a cuddly pet and don't like being picked up a lot. They may scratch and bite when picked up, and if not handled correctly they can injure themselves if they fall, or are dropped. It is advisable for children under 10 to be supervised when handling them. They can live indoors or outdoors, but need to have space to exercise and play daily. If outside they must be protected against preditors and bad weather. As they are very sociable animals it is best for them to have a companion, whether that be another bunny or you, if you have the time to spend with them. Bunnies may live 10 years or more so please consider this if you are thinking of getting one.
When should my Bunny be vaccinated?
Your bunny can be vaccinated from 6 weeks old. They will then need to be vaccinated annually. They are vaccinated against Myxomatosis and Viral Haemorrhagic Disease.
When should I neuter my bunny?
We advise that both male and female bunnies should be neutered from 4 months of age and when they weigh at least 1kg. Neutering prevents females becoming pregnant and can prevent unwanted behaviour in male and female bunnies, such as aggression.
Should I get my Bunny insured?
Insuring your bunny will give you peace of mind if they ever have an illness, accident or injury. This will ensure they are offered the best possible care without you having to worry about the cost.
Bunnies are constant eaters and will need a constant, unlimited supply of hay/grass. They need lots of hay/grass to keep their teeth healthy and their gut working properly. They can also have a small amount of commercial food in the form of pellets. Access to pellets should be restricted to 15 minutes in the morning and the same in the evening. Never feed museli types of dried food as bunnies will tend to pick out their favourite bits, so will not get a balanced diet. They also need some fresh green vegatables, such as kale, cabbage, green beans and carrot tops. A list of good vegetables to feed bunnies can be found on the RWAF website.
Flystrike is when flies lay their eggs on the bunny and they hatch into maggots. These can mature very rapidly, eating into the flesh of the bunny. This can be fatal within 1-2 days.
Time of year - Flystrike is especially common during the summer, but can occur at any time of the year.
Bunnies who cannot keep their bottom clean because they have back pain, or are overweight.
Bunnies who suffer from gut upsets.
Bunnies who have wounds or wet fur.
Bunnies love to chew and play, therefore it's important to get them lots of toys to keep them stimulated. Bunnies also love to hide so cardboard boxes or cardboard tunnels are great and also they love to chew them. They also love willow toys.

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Is a bunny for me ?
 Bunnies are great fun and are very sociable . They can also be very affectionate , but they are not a cuddly pet and do n't like being picked up a lot . They may scratch and bite when picked up , and if not handled correctly they can injure themselves if they fall , or are dropped . It is advisable for children under 10 to be supervised when handling them . They can live indoors or outdoors , but need to have space to exercise and play daily . If outside they must be protected against preditors and bad weather . As they are very sociable animals it is best for them to have a companion , whether that be another bunny or you , if you have the time to spend with them . Bunnies may live 10 years or more so please consider this if you are thinking of getting one .
 When should my Bunny be vaccinated ?
 Your bunny can be vaccinated from 6 weeks old . They will then need to be vaccinated annually . They are vaccinated against Myxomatosis and Viral Haemorrhagic Disease .
 When should I neuter my bunny ?
 We advise that both male and female bunnies should be neutered from 4 months of age and when they weigh at least 1 kg . Neutering prevents females becoming pregnant and can prevent unwanted behaviour in male and female bunnies , such as aggression .
 Should I get my Bunny insured ?
 Insuring your bunny will give you peace of mind if they ever have an illness , accident or injury . This will ensure they are offered the best possible care without you having to worry about the cost .
 Bunnies are constant eaters and will need a constant , unlimited supply of hay / grass . They need lots of hay / grass to keep their teeth healthy and their gut working properly . They can also have a small amount of commercial food in the form of pellets . Access to pellets should be restricted to 15 minutes in the morning and the same in the evening . Never feed museli types of dried food as bunnies will tend to pick out their favourite bits , so will not get a balanced diet . They also need some fresh green vegatables , such as kale , cabbage , green beans and carrot tops . A list of good vegetables to feed bunnies can be found on the RWAF website .
 Flystrike is when flies lay their eggs on the bunny and they hatch into maggots . These can mature very rapidly , eating into the flesh of the bunny . This can be fatal within 1 - 2 days .
 Time of year - Flystrike is especially common during the summer , but can occur at any time of the year .
 Bunnies who can not keep their bottom clean because they have back pain , or are overweight .
 Bunnies who suffer from gut upsets .
 Bunnies who have wounds or wet fur .
 Bunnies love to chew and play , therefore it 's important to get them lots of toys to keep them stimulated . Bunnies also love to hide so cardboard boxes or cardboard tunnels are great and also they love to chew them . They also love willow toys .


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Infiniti electro optics custom builds ultra long range night vision & surveillance camera systems using a variety of sensors including but not limited to Thermal uncooled LWIR & Cooled MWIR, SWIR, INGAS, MCT, INSB. And ultra HD Visible and NIR multi sensor long range PTZ camera system that are affordable and military grade with up to 1400mm continuous zoom lens for 55km of human detection with HD resolution makes it the longest range thermal camera.
of 1280×720 and an ultra-long cooler lifetime of 24,000 hours.
performance on par with 2500mm thermal systems.
delivering crisp, clear images for optimal performance and situational awareness in the wide field of view and crisp details in the narrow field of view.
terrestrial temperature targets emit most of their infrared energy.
detecting vehicles up to 55km at night.

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Infiniti electro optics custom builds ultra long range night vision & surveillance camera systems using a variety of sensors including but not limited to Thermal uncooled LWIR & Cooled MWIR , SWIR , INGAS , MCT , INSB . And ultra HD Visible and NIR multi sensor long range PTZ camera system that are affordable and military grade with up to 1400 mm continuous zoom lens for 55 km of human detection with HD resolution makes it the longest range thermal camera .
 of 1280×720 and an ultra - long cooler lifetime of 24,000 hours .
 performance on par with 2500 mm thermal systems .
 delivering crisp , clear images for optimal performance and situational awareness in the wide field of view and crisp details in the narrow field of view .
 terrestrial temperature targets emit most of their infrared energy .
 detecting vehicles up to 55 km at night .


text:
In today’s real estate market, you need a real estate professional you can trust. I am in the business of creating a superior real estate experience. Whether you want to buy, sell, or rent, I will help make your home ownership dreams come true. My websites offer a wealth of information on finding and buying a home, and I am always ready to answer any questions you may have. Call me today and learn why my clients feel extra special!
"Gloria is a professional and you know it right away, she listen to our wants and immediately found several homes that we liked. She has a heart of a saint as she was so patient and understanding with us. And when your looking for an agent, you really need to know that she or he has your best interest, and not once did we ever feel Gloria wasn't representing us. Her follow-up and contact communications made us feel, we had the best realtor. Not only was she our realtor, but she also took care of our dogs when we moved. She is amazing and a good spirtiual person!"

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In today ’s real estate market , you need a real estate professional you can trust . I am in the business of creating a superior real estate experience . Whether you want to buy , sell , or rent , I will help make your home ownership dreams come true . My websites offer a wealth of information on finding and buying a home , and I am always ready to answer any questions you may have . Call me today and learn why my clients feel extra special !
 " Gloria is a professional and you know it right away , she listen to our wants and immediately found several homes that we liked . She has a heart of a saint as she was so patient and understanding with us . And when your looking for an agent , you really need to know that she or he has your best interest , and not once did we ever feel Gloria was n't representing us . Her follow - up and contact communications made us feel , we had the best realtor . Not only was she our realtor , but she also took care of our dogs when we moved . She is amazing and a good spirtiual person ! "


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We become zealots of "the model" because "the model has to be the answer"
How many won deals because your customer liked you?
How many lost deals because your customer didn't like you?
The learning objective is not the answer. The improved behavior is the answer.
Be learner-focused. They should do most of the talking. It's all about them.
When you talk you create objections!
Be brief. Be good. Be gone.
Once you get high, stay high.
Don't ask permission. "Hey, I'm going to be meeting with your boss. Anything you'd like me to bring up with your boss?"
Out-understand your competitors. Only 11% of customers believe salespeople understand their needs.
Order John Reid's book "Moving from Models to Mindsets: Rethinking the Sales Conversation"

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We become zealots of " the model " because " the model has to be the answer "
 How many won deals because your customer liked you ?
 How many lost deals because your customer did n't like you ?
 The learning objective is not the answer . The improved behavior is the answer .
 Be learner - focused . They should do most of the talking . It 's all about them .
 When you talk you create objections !
 Be brief . Be good . Be gone .
 Once you get high , stay high .
 Do n't ask permission . " Hey , I 'm going to be meeting with your boss . Anything you 'd like me to bring up with your boss ? "
 Out - understand your competitors . Only 11 % of customers believe salespeople understand their needs .
 Order John Reid 's book " Moving from Models to Mindsets : Rethinking the Sales Conversation "


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Hitting chest today?? Try this chest finisher at the end to get a gnarly chest pump⬇⬇ You don’t even need a gym pass for this finisher either, it can all be done in your home!
If you need to see how to do these exercises, look under the Vault of Gainz page. When you get to the page, go to the chest video section and you will see how to perform each exercise.
Do these back to back to back without a rest and that counts as one set. Do 3 sets of 20-25 repetitions EACH after a big chest workout or just try it at home with your feet on a chair or couch!
This tri-set of exercises will target the top, bottom and middle chest so that you get the pump and growth all around your pectoral muscles.
Share this with your gym buddy’s and try it out!

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Hitting chest today ? ? Try this chest finisher at the end to get a gnarly chest pump ⬇  ⬇  You do n’t even need a gym pass for this finisher either , it can all be done in your home !
 If you need to see how to do these exercises , look under the Vault of Gainz page . When you get to the page , go to the chest video section and you will see how to perform each exercise .
 Do these back to back to back without a rest and that counts as one set . Do 3 sets of 20 - 25 repetitions EACH after a big chest workout or just try it at home with your feet on a chair or couch !
 This tri - set of exercises will target the top , bottom and middle chest so that you get the pump and growth all around your pectoral muscles .
 Share this with your gym buddy ’s and try it out !


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Another frequently used computer algebra system is MATLAB. You can also use this to find solutions to the initial value problem. With MATLAB, you don’t have to be sure to select Worksheet mode as in Maple or a Notebook as in Mathematica. You just open it and type in what you want after >>. This is very nice. As with Maple, if you want commands to appear on separate lines, you use “shift enter”. Mathematica is the only one which uses “shift enter” to cause the software to do something.
The basic version of MATLAB is sufficient to do the numerical procedures discussed. In order to do procedures which involve commands like “syms” you will need to have the symbolic math toolbox also. In particular, you need this toolbox for the first example given here in which “dsolve” is used, but not for the numerical procedures mentioned next.
y′ = y− .01y2,y (0) = 2.
After typing in the above, you press enter and here is what results.
and press “enter”. This will give a large table of values of x followed by values of y which comes from using a suitable numerical method named ode45 and it will also plot the solution.
If you don’t want to see this large table of values, simply place a ; at the end of ∗. This will cause MATLAB to defer displaying the table even though it knows about it.
for example, you ask for the table of values. This is done by typing [x,y] after >> and then “enter” to see the whole table and simply scroll down to find an entry in the column for x which is close to .5. There is also another way to find the values using the deval function.
. It has defined the function y at least at many points. Now you can simply define another solution with a different initial condition as follows.
for various values of z, you get the following graph.
Note how this illustrates that there are three equilibrium points −1,0,1 and that the first and third are stable but 0 is not.
then press “enter”. You should get the values of y at the points 1,2,3,4,5. Remember that to place on a new line, you use “shift enter”. You could also use any other symbol for “sol”.
Another thing I have noticed when using MATLAB is that it sometimes puts the graph behind the command window so you don’t see it till you shrink the command window.
To adjust the appearance of the graph which results, you go to the graph and click on file and then export setup. You can make changes in a dialog box and do things like change the thickness of the lines and the size of the font very easily. Then you can save it as an eps file or several other kinds of files.
Also, when you are done, type >> clear all or close all and then “enter”. Then type >> clf and “enter” to get rid of any graphs it may have done and press “enter”. To clear the screen, type >>clc and then press “enter”. This is a very good idea because if you want to do something else, you don’t want MATLAB to be confused about what you mean and it will be confused if it can.

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Another frequently used computer algebra system is MATLAB . You can also use this to find solutions to the initial value problem . With MATLAB , you do n’t have to be sure to select Worksheet mode as in Maple or a Notebook as in Mathematica . You just open it and type in what you want after > > . This is very nice . As with Maple , if you want commands to appear on separate lines , you use “ shift enter ” . Mathematica is the only one which uses “ shift enter ” to cause the software to do something .
 The basic version of MATLAB is sufficient to do the numerical procedures discussed . In order to do procedures which involve commands like “ syms ” you will need to have the symbolic math toolbox also . In particular , you need this toolbox for the first example given here in which “ dsolve ” is used , but not for the numerical procedures mentioned next .
 y′ = y− .01y2,y ( 0 ) = 2 .
 After typing in the above , you press enter and here is what results .
 and press “ enter ” . This will give a large table of values of x followed by values of y which comes from using a suitable numerical method named ode45 and it will also plot the solution .
 If you do n’t want to see this large table of values , simply place a ; at the end of ∗. This will cause MATLAB to defer displaying the table even though it knows about it .
 for example , you ask for the table of values . This is done by typing [ x , y ] after > > and then “ enter ” to see the whole table and simply scroll down to find an entry in the column for x which is close to .5 . There is also another way to find the values using the deval function .
 . It has defined the function y at least at many points . Now you can simply define another solution with a different initial condition as follows .
 for various values of z , you get the following graph .
 Note how this illustrates that there are three equilibrium points −1,0,1 and that the first and third are stable but 0 is not .
 then press “ enter ” . You should get the values of y at the points 1,2,3,4,5 . Remember that to place on a new line , you use “ shift enter ” . You could also use any other symbol for “ sol ” .
 Another thing I have noticed when using MATLAB is that it sometimes puts the graph behind the command window so you do n’t see it till you shrink the command window .
 To adjust the appearance of the graph which results , you go to the graph and click on file and then export setup . You can make changes in a dialog box and do things like change the thickness of the lines and the size of the font very easily . Then you can save it as an eps file or several other kinds of files .
 Also , when you are done , type > > clear all or close all and then “ enter ” . Then type > > clf and “ enter ” to get rid of any graphs it may have done and press “ enter ” . To clear the screen , type > > clc and then press “ enter ” . This is a very good idea because if you want to do something else , you do n’t want MATLAB to be confused about what you mean and it will be confused if it can .