Jensen v. iShares TrustAnnotate this Case
Investors purchased shares of BlackRock iShares Exchange-Traded Funds (ETFs) and suffered financial losses when their shares were sold pursuant to “market orders” or “stop-loss orders” during a “flash crash” in August 2015, when ETF trading prices fell dramatically. The investors claim that BlackRock’s registration statements, prospectuses, and amendments thereto issued or filed between 2012 and 2015, were false or misleading in that they failed to sufficiently disclose the risks associated with flash crashes. The investors sued, alleging violations of disclosure requirements under the Securities Act of 1933. 15 U.S.C. 77k.
The court of appeal affirmed that the investors lacked standing. Liability under sections 11 and 12(a)(2) of the 1933 Act applies only to initial offerings; the investors purchased their ETF shares on the secondary market. The court rejected claims citing section 11, under which a plaintiff has standing if shares purchased in the secondary market can be traced back to an offering made under a misleading registration statement. Given the greater availability of information about potential investments to secondary market investors, limiting the stricter liability imposed by the 1933 Act to primary market transactions is not necessarily unreasonable. In contrast to the “catchall” provisions of the Exchange Act, 15 U.S.C. 77j(b)[ 22]—sections 11 and 12(a)(2) of the Securities Act “apply more narrowly but give rise to liability more readily.”