"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Monday, November 22, 2010

GM'S IPO - The Default Position

The United States Treasury ("UST") is a selling stockholder in the General Motors initial public offering.  In the prospectus for the offering, a required document under the federal securities laws, there is this remarkable statement:

The UST, a selling stockholder, is a federal agency, and your ability to bring a claim against it under the federal securities laws may be limited.
The doctrine of sovereign immunity, as limited by the Federal Tort Claims Act (the FTCA), provides that claims may not be brought against the United States of America or any agency or instrumentality thereof unless specifically permitted by act of Congress. The FTCA bars claims for fraud or misrepresentation. At least one federal court, in a case involving a federal agency, has held that the United States may assert its sovereign immunity to claims brought under the federal securities laws. In addition, the UST and its officers, agents and employees are exempt from liability for any violation or alleged violation of the anti-fraud provisions of Section 10(b) of the Exchange Act by virtue of Section 3(c) thereof. Thus, any attempt to assert a claim against the UST or any of its officers, agents or employees alleging a violation of the federal securities laws, including the Securities Act and the Securities Exchange Act of 1934, as amended (the Exchange Act), resulting from an alleged material misstatement in or material omission from this prospectus or the registration statement of which this prospectus is a part, or any other act or omission in connection with this offering, likely would be barred.  
In other words, the federal government has exempted itself from the very securities fraud statutes that govern every other issuer of securities.   They have, in short, given themselves the right to say anything about GM's profitability or prospects, without fear of any kind of lawsuit.  

The default position of the Regular Guy on the GM IPO is.... anyone who buys GM stock under this regime is a fool.  

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