In Re Donald Trump Casino Securities Litigation

7 F.3d 357 (3rd Cir. 1993)

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Nature of the Case

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Facts

D offered $675,000,000 in first-mortgage investment bonds at an interest rate of 14 percent. Ps purchased these bonds that were to be used to finance the construction and completion of the Taj Mahal Casino in Atlantic City. The prospectus estimated the completion costs to be $805 million. . Sources of income coming from the bonds, a capital contribution by Trump, and loans were to provide enough to complete the casino. The prospectus stated that management believed that operating funds would be sufficient to cover this debt service. The prospectus included statements that the scale and size of the venture were unprecedented and that there were numerous risk. Chief among those was a high level of competition and a peak season of business in the summer. Ds filed for bankruptcy. Kaufman (Ps) claimed that this statement was materially misleading because Ds lacked a reasonable belief in its truth and because they failed to disclose that the casino would have to drop $1.3 million per day to simply break even. D announced its intention to declare bankruptcy. Ps filed their complaint under 10b-5 and 12(2). The district court dismissed the complaint under FRCP 12(b)(6) for failure to state a claim; citing the numerous disclaimers in the bond prospectus. This has become known as the bespeaks caution doctrine.