Holtzman v. Omega Healthcare Investors, Inc., No. 19-1095 (2d Cir. 2020)
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The Second Circuit reversed and remanded the district court's dismissal of plaintiff's putative class action claims against Omega under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiffs alleged that Omega misled investors by failing to disclose a $15 million working capital loan it made to one of its major tenants, Orianna, and that the omission hid from investors the true magnitude of Orianna's solvency problems.
The court held that the complaint adequately alleges that Omega acted with scienter in failing to disclose the loan. In this case, Omega's decision not to disclose the loan -- in the context of its disclosures regarding Orianna's financial health -- was a sufficiently extreme departure from the standards of ordinary care to satisfy the Private Securities Litigation Reform Act of 1995's requirement for showing recklessness. The court stated that the allegations in the complaint raise a strong inference that defendants acted, at the very least, recklessly in choosing to disclose incomplete and misleading information regarding Orianna. Furthermore, the facts as alleged create a compelling inference that defendants made a conscious decision to not disclose the loan in order to understate the extent of Orianna's financial difficulties.
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