Cite as 7 F.3d 357 (3rd Cir. 1993)
great lengths to alert investors to many of the specific risks involved in the successful completion and operation of the Taj Mahal. It clearly conveyed the projected magnitude and enormity of the casino/hotel—the size of which was unprecedented in Atlantic City—and acknowledged that consequently the Taj Mahal’s projected cash flow and profitability were highly uncertain. In addition, the prospectus directly related this uncertainty to the indefiniteness of the Partnership’s ability to repay the bonds. With great detail, it also explained the intense competition the Taj Mahal would face in Atlantic City. The prospectus even predicted that, due to the projected increase in casino floor space, the average casino win per square foot would decrease in Atlantic City.
A reasonable investor, having read these cautionary explanations, would understand that the Taj Mahal carried substantial risks. He or she would further comprehend that, because of its size, the Taj Mahal would need to generate a particularly high daily casino win. In other words, an explicit statement in the prospectus that the Taj Mahal demanded an average daily casino win of $1.3 million to meet its debtload would have been superfluous. We therefore hold as a matter of law that this omission was immaterial and cannot form the basis for a claim under the federal securities laws.
C. Debt/Equity Ratio
The plaintiffs furthermore allege that the prospectus failed to disclose that the construction and operation of the Taj Mahal “involved an excessive, unwarranted, and unprecedented debt component relative to total capitalization. Out of the $805 million total projected … costs, no more than $75 million for only nine percent) represented capital contributions.” Complaint at ¶ 36.
The plaintiffs cannot successfully contend that the prospectus failed to disclose the specifics of the debt-equity ratio. The prospectus set forth the details of the venture’s projected debt component with great clarity. It advised that the Partnership estimated a cost of approximately $805 million to fund the acquisition, completion and operation of the Taj Mahal and to repay the interest on the bonds for fifteen months. It then specifically delineated the several sources for this amount and the magnitude of each source.[1] Thus the prospectus adequately apprised the bondholders that capital contributions (rather than debt obligations) would supply only about nine percent of the Taj Mahal’s funds.
In addition, the plaintiffs cannot successfully contend that the prospectus is actionable because it failed to describe its debt-equity ratio as either “unwarranted” or “excessive.” See Goldberg v. Meridor, 567 F.2d 209, 218 n. 8 (2d Cir.1977) (“We do not mean to suggest that § 10(b) or Rule 10b–5 requires insiders to characterize conflict of interest transactions with pejorative nouns or adjectives.”), cert. denied, 434 U.S. 1069, 98 S.Ct. 1249, 55 L.Ed.2d 771 (1978). The prospectus disclosed the relevant fact that capital contributions would provide only $75 million of the $805 million budget. And even assuming the Partnership had superior access to such information, the prospectus’ failure to compare the Taj Mahal’s debt-equity ratio with that of other casinos does not, by itself, create an actionable claim.
The federal securities laws do not ordain that the issuer of a security compare itself in myriad ways to its competitors, whether favorably or unfavorably, for at least three reasons. First, such a requirement would impose an onerous if not insurmountable obstacle on issuers of securities to ensure they obtain accurate information on all aspects of their competitors which a reasonable investor might find material. Second, were we to announce such a requirement, the likely result would be to inundate the investor with what the Supreme Court disparaged as “an avalanche of trivial information.” TSC, 426 U.S. at 448, 96 S.Ct. at 2132. Third—and of greatest consequence—it is precisely and uniquely the function of the prudent investor, not the issuer of securities, to make
- ↑ The prospectus specified how the Partnership planned to finance the $805 million: $675 million from the sale of the bonds; $75 million from Trump’s capital contribution; and $55 million from other sources, including earnings from the investment of the yet unused portion of the bond proceeds and the $25 million Trump was obliged to lend the venture under certain circumstances.
