A new ruling has been issued in the MD&A case that we discussed in our February 3 post. In its latest opinion, the U.S. District Court for the Southern District of Florida denied the defendants’ motion to reconsider the court’s granting partial summary judgment to the SEC. The court reiterated, among other things, that defendant BBX had failed to disclose its internal concerns about the credit risk of its entire commercial residential portfolio. Specifically, BBX did not “disclose the existing trend of crumbling creditworthiness evident in the entire Commercial Residential Loan Portfolio through extensions, loan downgrades, and so on.”
The court indicated that simply disclosing that the market may decline in the future—while, at the same time, failing to disclose to investors current known “problematic trends”—is not sufficient disclosure to prevent liability. It found unpersuasive the defendants’ arguments that “they could not have foreseen the sudden crash of the housing market” and that they thought certain “loans would be fine,” given the numerous internal communications indicating that the defendants were worried about such loans. The court concluded that the “[d]efendants do not even come close to satisfying the standard necessary for the [c]ourt to reconsider its ruling granting the SEC partial summary judgment.”