Here is a first go at it:
Fortune article by Carol Loomis July 5, 2016
Elon Musk Says Autopilot Death 'Not Material' to Tesla Shareholders
Loomis states: "Tesla and Musk did not disclose the very material fact that a man had died while using an auto-pilot technology that Tesla had marketed vigorously as safe and important to its customers."
Loomis claims that it was "material" she doesn't cite a source for this legal conclusion. She just states it as fact, indeed as worthy of the adjective "very" material.
The only support for the claim that is was material is the fleeting day trading drop in the stock, from which it more than fully recovered. Indeed when the markets fully digested the information, the stock price more than fully recovered that day and still remains.
Loomis realizes this and states blandly: "That the fact was indeed “material” can be at least mildly suggested by the immediate fall in Tesla’s stock price on Friday morning. In a market that was then generally rising, Tesla stock dropped from Thursday’s close of $212 to a low of $206. But then the market reversed itself. By the end of the trading day, the stock had climbed above $216."
Not recognizing that she just undermined her own argument that it was material.
When a stock price drops in response to disclosed news, that is one indication that the information is material -- but the fact that it dropped for w few hours, and then fully recovered and remain recovered while the news was digested directly contradicts any suggestion that stock price actions indicates materiality.
But a stock price drop itself doesn't indicate materiality or not (however it does create a basis for damages). The true materiality standard is different:
Actually she is not only wrong about how to use stock price drops, she is also wrong on the law on what is material or not. The fraud rules under Section 17(a) of the Securities Act and Rule 10-b(5) under the Exchange Act have been interpreted to include making material misstatements, including material omissions. “An omitted fact is material if there is a substantial likelihood that a reasonable [investor] would consider it important in deciding [to make the investment]. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
What are the facts of the accident? The police report stated The police report, which was made after interviewing witnesses (something Loomis never bothered to do), states:
“V01[truck] proceeded to make a left turn directly in front of V02[Tesla] as it was oncoming.”
The report also stated that the truck driver “Action at Time of Crash” was that he “Failed to Yield Right of Way”
A homicide case was opened.
http://documents.latimes.com/tesla-accident-report/
That is what was known shortly after the accident. Does Loomis think it is material to an investor making a decision in a Tesla security that Tesla driver was in an accident when a truck made "a left turn directly in front of the" vehicle thus failing to yield the right of way, and vehicular homicide charges were in the works? Those accidents happen all the time and it is laughable to think that they would be material, and further laughable to ominously wonder about plaintiff lawsuits getting to the bottom of it, when the stock has and remains up since the news, thereby undermining any claim for damages.
Because very importantly the lack of stock price drop makes it impossible for a plaintiff to claim damages for a 10b5 material omission violation.
"[T]o establish loss causation, “a plaintiff must allege ...that the subject of the fraudulent statement or omission was the cause of the actual loss suffered,”.... i.e., that the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security. Otherwise, the loss in question was not foreseeable." Lentell v. Merrill Lynch & Co. 396 F.3d 161 (2d Cir.), cert. denied, 546 U.S. 935 (2005).
and see Jonathan Eisenberg, Beyond the Basics: Seventy-Five Defenses Securities Litigators Need to Know, 62 Bus. Law. 1281, 1338 (2007)
Loomis made statements alleging securities laws violations and she gets both the standard of materiality wrong, and the basis for damages wrong. You'd think Fortune magazine would have someone on staff who could help her with basic securities law 101 before going to print.
