American Banknote Corporation (ABN) spun off its wholly owned subsidiary American Bank Note Holographics (ABNH) in an initial public offering. Morris Weissman was the founder of ABN and also the chair and CEO of both ABN and ABNH. Plaintiff purchasers of ABNH’s stock sued Weissman, among others, for securities fraud under Sections 11, 12(a)(2), and 10(b). In two press releases, Weissman stated:

Our most important goal in 1998 is to enhance shareholder value. We hope to prove to the market that inherent values of our underlying operating subsidiaries, not apparent when evaluating American Banknote on the basis of traditionally consolidated earnings per share, are indeed significant.

This IPO is a win–win for both companies. . . . ABNH can now concentrate on continuing the profitable growth of its core security holography business as well as explore business and market expansion opportunities.

In fact, ABNH was neither a valuable company nor profitable. Is Weissman liable under Section 10(b) and Rule 10b–5? What would be the best argument in his defense? [In re American Bank Note Holographics, Inc. Securities Litigation, 93 F. Supp. 2d 424 (S.D.N.Y. 2000).]