a. What is the goal of a registration statement?
b. Is a registration statement by definition defective if the investment turns out to be worthless?
c. Why did the plaintiffs' file suit in this case?
d. Did the court agree?
e. What is the moral of this story?
Family Golf Centers, Inc., a public company that owned and operated 119 golf courses nationwide, sold shares in a second public offering to raise funds to acquire more courses. Within two years of the second offering Family Golf Center's earnings declined, its stock price fell by 43%, and the company filed for bankruptcy protection.
The plaintiffs purchased stock from the company in the second public offering. They sued the company's officers and underwriters, alleging that the registration statement contained misrepresentations about Family Golf's financial performance and projected income. The district court granted defendants' motion to dismiss and the plaintiffs appealed.