71 N.Y.2d 775 (1988)
Under the Martin Act, an omission is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to act, viewing the omission in light of the total mix of information available.
Summary
This case addresses whether a real estate company’s failure to disclose an unmet precondition to a cooperative conversion constitutes fraud under New York’s Martin Act. The Attorney-General sought an injunction, arguing that the omission misled tenants into purchasing their apartments. The Court of Appeals reversed the lower court’s decision, holding that the omitted information (a mortgage requirement to sell 40.5% of the units) was not material because it was already disclosed in the original offering plan and would not have significantly altered a reasonable tenant’s decision to purchase by the insider deadline, given the other conditions that had been met.
Facts
Rachmani Corporation was the selling agent for the cooperative conversion of an apartment building. The offering plan, distributed in December 1979, required 35% of tenants to subscribe for an eviction-type conversion and a separate condition imposed by the mortgagee requiring 40.5% of the apartments to be sold by June 26, 1981. On July 3, 1980, Rachmani notified tenants that the 35% requirement was met, but did not mention that the 40.5% requirement was not. Tenants had until July 6, 1980, to purchase at the insider price. The Attorney-General alleged that the omission of the 40.5% requirement in the July 3 notice constituted fraud under the Martin Act.
Procedural History
The Attorney-General brought an enforcement action. The trial court found that the defendants committed fraud by omitting the 40.5% requirement, issuing an injunction under the General Business Law and Executive Law. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal and reversed the Appellate Division’s order, vacating the injunction and dismissing the complaint.
Issue(s)
Whether the failure to mention the unmet 40.5% sales requirement in the July 3 notice, when the 35% tenant subscription requirement had been met, constituted a material omission amounting to fraud under the Martin Act.
Holding
No, because the omission of the 40.5% sales requirement was not a material omission that would have significantly altered a reasonable tenant’s decision to purchase their apartment, given that this requirement was already disclosed in the original offering plan and the tenants were deciding whether to purchase at the insider price before the July 6 deadline.
Court’s Reasoning
The Court of Appeals adopted the federal securities law standard for materiality, stating, “An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote * * * [T]here must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” The court reasoned that a reasonable tenant would be presumed to have knowledge of the original offering plan, which disclosed the 40.5% requirement. The court emphasized that tenants were primarily concerned with whether they could be evicted if they did not purchase by July 6. Since the 35% requirement had been met, they knew eviction was possible if they did not purchase. The 40.5% requirement, which could be satisfied by sales to tenants or outsiders, and which had almost a year to be met, would not have significantly impacted their decision. The Court highlighted that “there is no requirement that information already adequately disclosed be spoonfed to them” and that including unnecessary information could be misleading. A gratuitous reminder of the unmet 40.5% condition could even be interpreted as an attempt to dissuade tenants from exercising their insider rights.