Charles Greenhouse, individually v. McG Capital Corporation

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 CHARLES GREENHOUSE, individually
and on behalf of all others similarly
situated; EVELYN ROSEN; WILLIAM B.
MOUK,
Plaintiffs-Appellants,
No. 03-2318 v.
MCG CAPITAL CORPORATION; BRYAN
MITCHELL; JANET C. PERLOWSKI;
STEVEN F. TUNNEY,
Defendants-Appellees. 
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-03-114-A-1)
Argued: September 30, 2004
Decided: December 21, 2004
Before WILKINSON, GREGORY, and SHEDD, Circuit Judges.
Affirmed by published opinion. Judge Gregory wrote the opinion, in
which Judge Wilkinson and Judge Shedd joined.
COUNSEL
ARGUED: Sanford Svetcov, LERACH, COUGHLIN, STOIA, GEL-
LER, RUDMAN & ROBBINS, L.L.P., San Francisco, California, for

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Appellants. Charles Edward Davidow, WILMER, CUTLER, PICK-
ERING, HALE & DORR, L.L.P., Washington, D.C., for Appellees.
ON BRIEF: Jack Reise, Scott L. Adkins, LERACH, COUGHLIN,
STOIA, GELLER, RUDMAN & ROBBINS, L.L.P., Boca Raton,
Florida; John C. Pasierb, COHEN, GETTINGS & CAULKINS, P.C.,
Arlington, Virginia; David Kessler, Stephen P. McFate, SCHIFFRIN
& BARROWAY, L.L.P., Bala Cynwyd, Pennsylvania, for Appel-
lants. Paul R. Eckert, WILMER, CUTLER, PICKERING, HALE &
DORR, L.L.P., Washington, D.C., for Appellees.
OPINION
GREGORY, Circuit Judge:
This suit arises from a CEO’s lie about finishing college. Specifi-
cally, Bryan J. Mitchell ("Mitchell"), the founder and leader of MCG
Capital Corporation ("MCG" or "the company") misled his company
into believing that he was awarded a college degree when, in truth,
he never obtained one. As a result, MCG misrepresented Mitchell’s
educational background in the documents it publicly filed for inves-
tors. Once Mitchell came clean, MCG corrected its statements.
MCG’s stock price dipped sharply once the truth was revealed, and
shortly thereafter it found itself defending this class action lawsuit
brought by MCG shareholders in the United States District Court for
the Eastern District of Virginia. The stock owners pursued claims
against MCG under § 11(a) of the Securities Act of 1933, § 10b of the
Securities Exchange Act of 1934, and SEC Rule 10b-5, and against
several individual defendants, including Mitchell, under the control-
person liability provisions of the respective securities statutes. On
September 12, 2003, the district court dismissed the case, finding as
a matter of law that Mitchell’s education was immaterial. While we
freely acknowledge that Mitchell’s conduct is indefensible, we agree
that the actual fact misrepresented was immaterial under the securities
laws. Therefore, we affirm.
I.
MCG is an Arlington, Virginia-based venture capital firm that
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makes debt and equity investments in small and mid-sized private
businesses in the media, communications, technology, and informa-
tion services sectors.1 The company has been traded publicly since its
Initial Public Offering ("IPO") in late 2001.
Following about a decade of experience at two banks, in 1998
Mitchell helped found MCG and began his tenure as the company’s
CEO and Chairman of the Board. The Appellees admit that Mitchell
held himself out as having earned a bachelor’s degree in economics
from Syracuse University.2 The truth, however, is that Mitchell
attended Syracuse for three years and studied economics, but left
before getting his degree.
MCG included Mitchell’s purported educational background in
various forms filed with the SEC in preparation for its IPO.3 As an
example, the "biographical information" section of the registration
statements and prospectus ("Prospectus") stated:
Bryan J. Mitchell has served as our Chief Executive Officer
since 1998 and as the Chairman of our board of directors
since May 2001. Mr. Mitchell has served as a member of
our board of directors since 1998 and also served as our
President from 1998 to May 2001. From 1997 to 1998, Mr.
Mitchell was a Senior Vice president for First Union
National Bank. From 1988 to 1997, Mr. Mitchell was
employed by Signet Bank where he served as a Senior Vice
President. Mr. Mitchell serves on the board of directors of
MCG Finance Corporation and MCG Finance Corporation
II. Mr. Mitchell earned a B.A. in Economics from Syracuse
University.
1MCG is registered with the SEC as a "business development com-
pany" under the Investment Company Act of 1940, 15 U.S.C. §§ 80a-53-
64.
2Appellants argue, perhaps reasonably but without specific evidence,
that Mitchell must have misrepresented his academic credentials to each
of his previous employers.
3Specifically, along with its Prospectus, Appellants allege that the mis-
representation was included in MCG’s Forms 497, N-2, N-2/A, PRE
14A, and DEF 14A. J.A. 24-25.
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Prospectus at 79 (emphasis added). The brief biographical statements
about MCG’s managers were, of course, merely one part of MCG’s
filings; other extensive information existed. Aside from this single
sentence, repeated in various forms, however, Appellants allege no
other misstatements.
After apparent pressure by Herb Greenberg ("Greenberg"), a
reporter with the website "TheStreet.com" who questioned Mitchell’s
actual history, Mitchell told the truth to MCG’s board on November
1, 2002. Later that same day, MCG publicly corrected Mitchell’s mis-
representation through a press release, which read:
MCG Capital Corporation announced today that its Chair-
man and Chief Executive Officer, Bryan J. Mitchell,
informed the Company’s Board of Directors this morning
that contrary to prior disclosures, he does not hold a Bache-
lor of Arts degree from Syracuse University. The Board of
Directors has requested the Chairman of the Company’s
Audit Committee, Wallace B. Millner, III, to review the
facts relating to these matters and to report to the full board
as promptly as possible.
J.A. 74. Appellants assert that this announcement brought MCG nega-
tive attention in the investment world. Specifically, they allege that an
analyst for Wachovia Securities downgraded MCG to "Hold" from
"Buy" on the day of the announcement, noting a worry that this mis-
representation foreshadowed larger "credibility issues" and that two
reporters on CNN’s Lou Dobbs Moneyline discussed the stock shortly
after the company’s correction, noting that Mitchell was "another
CEO that lied about his resume". J.A. 28-29. Appellants also note that
Greenberg questioned on "TheStreet.com" whether other "correc-
tions" were forthcoming. Specifically, on November 1, 2002 Green-
berg wrote that, ". . . if the CEO’s disclosure isn’t correct, you can’t
help but wonder . . . what else isn’t?". J.A. 76. He repeated this refrain
in a November 3rd post: "Can’t help but wonder why [sic] credibility
an admitted liar, of a CEO, will have going forward. (And can’t help
but wonder what else at the company has been, shall we say, embel-
lished.)". J.A. 81. Finally, on November 12th, Greenberg opined in an
article about MCG that, "[w]hen a CEO lies about his educational
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background . . . you have to wonder what else might not be right."
J.A. 84.
It is plainly plausible that, at least temporarily, investors ingested
or shared these financial pundits’ concerns about the company’s cred-
ibility in the wake of the corrective announcement. The stock dipped
to $8.40 from $11.85 per share on November 1, 2002. The full price
history of the stock, however, complicates the case: the next day, the
stock regained approximately half of the previous day’s loss, and the
remainder of its losses were recovered within about a month.4
While Mitchell was an undoubtedly important person for MCG,5 he
was by no means above its punishment. On November 3rd, the Board
withheld Mitchell’s 2001 and 2002 bonuses, made him repay monies
loaned to him by MCG, and removed his title as Chairman of the
Board. Mitchell remains stripped of his title as Chairman; he retained
(and retains) his position as CEO.
Appellee’s Fed. R. Civ. P. 12(b)(6) motion to dismiss did not deny
that Mitchell’s credentials were misstated, but rather argued that
whether Mitchell finished his degree at Syracuse was immaterial as
a matter of law. Concluding that the Appellants "cannot use the credi-
bility and integrity problems that result from a false statement to
bootstrap an otherwise immaterial false statement into creating a basis
for a securities fraud action," J.A. 152, the district court dismissed the
case.
4Specifically, on Monday, November 4, 2002, MCG’s share price
bounced back up $1.52, and, by December 10, 2002, it traded at a pre-
disclosure price. This increase took place during a time when the broader
markets were flat, at best. See J.A. 63, 88-90. We note that we, as well
as the district court, may take judicial notice of published stock prices
without converting a motion to dismiss into a motion for summary judg-
ment. See Ganino v. Citizens Utils. Co., 228 F.3d 154, 167 n.8 (2d Cir.
2000).
5The company itself represented in its investment materials that mem-
bers of MCG’s credit committee (which approves all of MCG’s invest-
ments) and senior management team — both of which include Mitchell
— play a crucial role in the company’s success.
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II.
A.
A district court’s dismissal for failure to state a claim under Fed.
R. Civ. P. 12(b)(6) is reviewed de novo. Goldstein v. Moatz, 364 F.3d
205, 211 (4th Cir. 2004). In general, the motion should not be granted
"unless it appears certain that the plaintiff can prove no set of facts
which would support its claim and would entitle it to relief." Mylan
Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993).
B.
In order to prevail on a claim for securities fraud under either
S.E.C. Rule 10b-5 ("Rule 10b-5") or Section 11(a) of the Securities
Act of 1933, 15 U.S.C. § 77k ("Section 11(a)"), the plaintiff must
prove, inter alia, "materiality."6 Specifically, Rule 10b-5 makes it
unlawful to ". . . make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made,
not misleading. . ." and carries with it a private right of action for the
Rule’s enforcement. Likewise, Section 11(a) creates a right of action
6See Phillips v. LCI Intern., Inc. 190 F.3d 609, 613 (4th Cir. 1999)("In
order to prevail on a § 10(b) and a Rule 10b-5 claim, the plaintiff carries
the burden of proving: (1) the defendant made a false statement or omis-
sion of material fact (2) with scienter (3) upon which the plaintiff justifi-
ably relied (4) that proximately caused the plaintiff’s damages."); Gasner
v. Bd. of Supervisors, 103 F.3d 351, 356 (4th Cir. 1996) (same); Parnes
v. Gateway 2000, Inc., 122 F.3d 539 (8th Cir. 1997)(any fact misrepre-
sented must be material to serve as the basis for a Section 11(a) viola-
tion); Greenapple v. Detroit Edison Co., 618 F.2d 198 (2nd Cir.
1980)(same).
The term "material" does not exist explicitly in the text of Section
10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b)
("Section 10(b)"). However, the Supreme Court treats Section 10(b)
identically to Rule 10b-5 for purposes of materiality. See Basic, Inc. v.
Levinson, 485 U.S. 224, 231 (1988).
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for purchasers when a registration statement "contained an untrue
statement of a material fact" or omits a material fact.7
Here, an investment in close textual reading pays dividends. The
plain language of Rule 10b-5 and Section 11(a) requires any success-
ful securities-fraud suit to allege a fact that is both untrue and mate-
rial. Sometimes the term "material misrepresentation" is used in the
securities-fraud context. As this case illustrates, however, this state-
ment can be imprecise. "Material" modifies "fact"; it does not modify
"misrepresentation." This is deceptively simple. Assuming other
requirements for liability are satisfied, these laws prohibit any misrep-
resentation of a fact deemed material. But they decidedly do not pro-
hibit any misrepresentation — no matter how willful, objectionable,
or flatly false — of immaterial facts, even if it induces reactions from
investors that, in hindsight or otherwise, might make the misrepresen-
tation appear material.8 It follows that no matter the attendant outcry
or opprobrium about a lie, if the specific fact misrepresented is imma-
terial, a suit cannot succeed.
The seminal Supreme Court treatment of materiality in the
securities-fraud context, found in Basic, Inc. v. Levinson, 485 U.S.
224 (1988), confirms this reading. In Basic, the Court expressly
adopted the materiality rule of TSC Indus., Inc. v. Northway, Inc., 426
U.S. 438 (1976), and noted that, "a plaintiff must show that the state-
ments were misleading as to a material fact. It is not enough that a
statement is false or incomplete, if the misrepresented fact is other-
wise insignificant." Basic, at 238 (emphasis in original). Under Basic
and its progeny, a fact is material if there is "a substantial likelihood
that the disclosure of the . . . fact would have been viewed by the rea-
sonable investor as having significantly altered the total mix of infor-
7The Complaint also made claims against the individual defendants
under 15 U.S.C. §§ 77o and 78t, the respective "control person" liability
provisions of Sections 10b and 11(a). These provisions are, essentially,
dependent derivatives of their parent statutes, and are thus properly dis-
missed if the parent statutes fail to state a claim upon which relief may
be granted.
8It must be thus: public reaction or fear of future revelations simply
cannot be an "untrue statement", nor can it be "made" by the defendant
or "contained" in SEC filings.
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mation made available." Id. at 231-32. See also Phillips v. LCI Int’l,
Inc. 190 F.3d 609, 617 (4th Cir. 1999) (noting "even lies are not
actionable" unless the lie is something that alters the total mix of
information available to a reasonable investor); Gasner v. Bd. of
Supervisors, 103 F.3d 351, 356 (4th Cir. 1996) (explaining that the
question of materiality is an objective one). It is important to note that
a "reasonable investor" is neither an ostrich, hiding her head in the
sand from relevant information, nor a child, unable to understand the
facts and risks of investing. See Hillson Partners L.P. v. Adage, Inc.,
42 F.3d 204, 213 (4th Cir. 1994)(courts need not ascribe "childlike
simplicity" to reasonable investor, but should ask whether investors
would have considered information significant)(citing Basic at 232-
34). The "total mix" of information available varies on a fact-specific
and case-by-case basis. However, in determining the total mix of
publicly-available information, a court ruling on a 12(b)(6) motion
may look to "documents or articles cited in the complaint, SEC fil-
ings, press releases, stock price tables, and other material on which
the plaintiff’s allegations necessarily rely." Morris v. Wachovia Sec.,
Inc., 277 F.Supp.2d 622, 629 (E.D. Va. 2003) (citing In re The First
Union Corp. Sec. Litig., 128 F.Supp.2d 871, 883 (W.D.N.C. 2001)).
Finally, cases note that determining materiality is a "mixed ques-
tion of law and fact." See TSC Indus., 426 U.S. at 450. When courts
decide they wish for a jury to hear a claim, they generally take pains
to emphasize the fact-specificness of materiality. See, e.g., id. at 450
("The determination requires delicate assessments . . . [that] are pecu-
liarly ones for the trier of fact."); see also, e.g., 1 Thomas Lee Hazen,
The Law of Securities Regulation § 7.3[1], 581 n.4 (4th ed. 2002)
(collecting cases). Appellants seize on to this fact and argue that,
given the facts in the complaint, only a jury could make the assess-
ment necessary and that the district court erred by dismissing the
claim at an early stage of litigation. No shortage of cases, however,
make clear that materiality may be resolved by a court as a matter of
law. See, e.g., Longman v. Food Lion, 197 F.3d 675 (4th Cir. 1999)
(alleged omissions of federal labor law and unsanitary food practices
were immaterial as a matter of law); Klein v. General Nutrition Cos.,
186 F.3d 338, 342 (3d Cir. 1999) (various alleged omissions from
registration statement and prospectus were not material and could be
decided as a matter of law); Hillson Partners, 42 F.3d at 209, 219-20
(noting that materiality was "fact-specific inquiry" but dismissing suit
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as immaterial); Raab v. General Physics Corp., 4 F.3d 286, 290-91
(4th Cir. 1993). The only requirement is that no reasonable jury could
find it substantially likely that a reasonable investor would find the
fact at issue material in the "total mix" of information. See, e.g., TSC
Indus., 426 U.S. at 450 ("materiality [is] appropriately resolved as a
matter of law" when "reasonable minds cannot differ on the ques-
tion").
Thus, our task on an appeal of an order granting a motion to dis-
miss for want of materiality is as straightforward as it is awkwardly
stated: we must, resolving doubt in favor of Appellants, decide
whether a reasonable jury could find it "substantially likely" that a
reasonable investor would believe that the disclosure of the untrue
fact(s) (and nothing but the disclosure of the untrue fact(s)) would
alter the "total mix" of information available to the reasonable inves-
tor.
III.
Appellants make a number of arguments, the best of which can be
summarized roughly into three main points: (A) as a key manager,
Mitchell’s education is a material fact; (B) "management’s integrity"
is always material; and (C) the district court erred by confusing causa-
tion with materiality and by taking into account the price of the stock
after November 1st, the day of disclosure. We address, and dismiss,
each contention in turn.
A.
The misrepresentation of an executive’s educational credentials has
seldom been addressed in published cases. Even the closest case anal-
ogies seem somewhat difficult to apply here because, as noted above,
materiality is a fact-specific determination. Those few cases (notably,
none from circuit courts) discussing misrepresentation of an educa-
tional degree even obliquely, however, do not support Appellants’
argument that misstatements about managers’ academic backgrounds
are material.
Indeed, no binding precedent exists, and the only case of which we
are aware that deals explicitly with such a fraud by an executive dis-
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misses that allegation as immaterial and takes pains to distinguish it
from truly material facts. See New Equity Sec. Holders Comm. for
Golden Gulf, Ltd. v. Phillips, 97 B.R. 492, 496-97 (E.D. Ark. 1989)
(distinguishing misrepresentation of a business degree, as immaterial,
from the omission of recent felony conviction of director, prior and
pending litigation against the company, and SEC investigation of the
company, as all material).
Appellants, however, cite two district court cases in support of their
claim that an individual’s education is material: SEC v. Physicians
Guardian Unit Inv. Trust, 72 F.Supp.2d 1342 (M.D. Fla. 1999) and
SEC v. Suter, No. 81 C 3865, 1983 WL 1287 (N.D. Ill. 1983). These
cases are distinguishable. Physicians Guardian denies, in a notably
conclusory fashion, a motion to dismiss an eight-count, 59-paragraph
action by the SEC requesting emergency relief and alleging a remark-
able multitude of outlandishly fraudulent activity. One of these many
fraudulent activities by repeat offenders included that a manager
falsely claimed to have a law degree and 27 years of experience as
a lawyer. 72 F.Supp.2d at 1344-51. Suter grants injunctive relief in a
securities fraud action that contained, hiding among many other false-
hoods that are clearly more important, a claim that an investment
adviser falsely claimed to have an MBA. 1983 WL 1287 at *3.
Appellants contend that the failure of the courts in these two cases
to tease out as immaterial the educational credential from the other
frauds, as did the New Equity court, is evidence that the courts found
such misrepresentations material. This may be facially reasonable, but
quickly becomes unpersuasive once one examines the opinions. In
both cases the SEC sought and obtained emergency injunctive relief
from a long litany of ongoing fraudulent activity by repeat players in
the fraud game. In each case, the courts appear overwhelmed with the
wide-ranging fraudulent behavior alleged of the defendants. In short,
neither court addresses in any specific fashion the materiality of the
individual education-related claim within the entire, wide-ranging
action, but rather rules against the defendants en masse. Here, in con-
trast, we are presented with the unusual circumstance that only one
misrepresentation is alleged among uncountable other pieces of infor-
mation in the prospectus, other filings, and elsewhere, making up the
"total mix" of information.
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While we do not hold as a matter of law that a key manager’s edu-
cation could never be material, we do find that Mitchell’s education
is immaterial here. Even limiting our view, as we must, to those mate-
rials relied upon by the Appellants in formulating their complaint and
those materials publicly available to reasonable investors, and view-
ing them in the light most favorable to the Appellants, Mitchell’s edu-
cational background could not be said to alter the "total mix" of this
information. For example, a reasonable investor would likely value
information found in MCG’s publicly filed statements and elsewhere
including: Mitchell’s years of management in financial institutions;
the other board members’ and key managers’ similar track record; the
years of MCG’s earnings statements as a private company; the firm’s
debt/equity ratio; the general costs of capital and macroeconomic
trends; the strength of MCG’s potential competitors; etc. In compari-
son, Appellants have advanced no credible theory as to why a reason-
able investor would consider what Mitchell did (or, as the case may
be, did not do) during what would have been his fourth year at Syra-
cuse to constitute something so important that it would alter this large
body of information.9 In short, the unavoidable conclusion one
reaches is that, in an age of heightened sensitivity to corporate scandal
some investors found, for a very short period of time, MCG’s stock
to be damaged goods because the company’s credibility was suddenly
suspect, and investors were concerned that revelations of other, more
important fabrications were soon forthcoming.10
9The emphasis here is on "credible": Appellants suggest that Mitchell’s
lack of a degree is crucial because the degree would have been in eco-
nomics, and MCG is a financial services company. But merely asking
one question answers this claim: all else being equal, would a reasonable
investor have devalued MCG’s stock had he never studied economics at
all, but rather graduated with a degree in, say, mathematics or psychol-
ogy? Of course not.
10Indeed, Appellants concede and argue as much, as they must. The
negative news reports Appellants cite did not breathlessly say, "Bryan
Mitchell didn’t take advanced macroeconomics in the early 1980s! MCG
will fail!". Rather, they cynically (and perhaps quite sensibly in a time
that saw numerous, highly publicized corporate frauds) stated, "he lied
about this; what else is untrue?".
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B.
Happily, this realization affords us the opportunity to address
Appellants’ next argument. Appellants cite a number of ultimately
unavailing cases in their attempt to argue that MCG’s disclosure
about Mitchell implicated management’s integrity. Nobody — even
MCG — disputes the idea that Mitchell’s integrity was brought into
question by the revelation that he lied. But this is only a distraction
from the real issue: whether the actual fact misrepresented — that is
the basis for this suit and that caused investors to question manage-
ment’s integrity — was, in and of itself, material.
In support of their integrity argument, Appellants present the case
of Gerhardt v. ConAgra Foods, Inc., 335 F.3d 824 (8th Cir. 2003).
But in Gerhardt, unlike here, there plainly was a misrepresented fact
that was actually material: management violated generally accepted
accounting principles and significantly overstated their earnings. Id.
at 830 ("The keystone of plaintiffs’ materiality argument is their alle-
gation that UAP’s misrepresentations caused ConAgra to appear to be
earning more than it was."). If ConAgra’s leaders knowingly misrep-
resented their earnings, of course one byproduct might be that inves-
tors would reasonably question the integrity of the company’s
management; like here, the "integrity concerns" in Gerhardt are
merely derivative of the misrepresentation that was the basis for the
suit. The key difference, however, is that the fact misrepresented in
Gerhardt — the company’s earnings — might plausibly alter the total
mix of information to a reasonable investor; here, Mitchell’s failure
to complete his fourth year in college could not.
Likewise, Appellants cite Zell v. Intercaptial Income Sec., Inc., 675
F.2d 1041 (9th Cir. 1982), for the same proposition. But again, Zell
dealt with a fact of an indisputably different quantum: the defendant’s
proxy statement failed to disclose "a score of lawsuits charging viola-
tions of state and federal securities laws." Id. at 1043. That both mis-
representations call management’s integrity into question follows
almost necessarily from the fact that they are lies; it does not, how-
ever, aid in the determination of whether Mitchell’s lie was about a
material fact.
Finally, Appellants cite a 40-year old SEC case for the proposition
that integrity is "always a material factor." In the Matter of Franchard
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Corp., 42 S.E.C. 163, Release No. 33-4710, 1964 WL 6754 (S.E.C.
July 31, 1964). In addition to the fact that it predates the Supreme
Court’s pronouncement in Basic and other key cases on materiality,
Appellants fail to note that this statement is, yet again, ancillary to
concerns growing from actual material facts that were not disclosed
(and thus were at issue) in the case. Reading the full context out of
which Appellants pluck their quote that integrity "is always a material
factor," one learns that the underlying fact at issue was that the com-
pany’s registration statements continually failed to disclose transfers
of large sums from the company to the controlling stockholder and
chief executive officer, which he used in his own ventures. Id. at *2-
*4, *6. This, in turn, created a likelihood of shift in control and
caused clear conflicts of interest with the company and its sharehold-
ers. Id.
In short, in each of these "integrity" cases, and unlike this case, a
real, live, material fact was at issue. Appellants seem to have chosen
these cases because the courts appear to have noted, offhandedly, that
management’s integrity is important and necessarily implicated with
such revelations. Of course, to some extent, "management’s integrity"
will always be implicated in any falsehoods. But as this Circuit and
the Court in Basic noted, not all lies are actionable; the securities laws
are only concerned with lies about material facts. Reading the law
otherwise, as Appellants would have us do, simply reads materiality
out of the statute. Under their theory, almost any misrepresentation by
a CEO — including, perhaps, one about his or her marital fidelity,
political persuasion, or golf handicap — that might cause investors to
question management’s integrity could, as such, serve as a basis for
a securities-fraud class action. The law simply does not permit such
a result.
C.
Finally, Appellants challenge the extent to which the district court
looked at MCG’s stock history after the initial November 1, 2002
drop, and suggest that the court misunderstood the basics of material-
ity analysis. They cite Justin Indus. v. Choctaw Sec., Inc., 920 F.2d
262, 267-68 (5th Cir. 1990) for the proposition that market movement
"cannot be a dispositive test [of materiality]" and argue that the court,
in fact, used it as a dispositive test.
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First, we take the time to note that there is absolutely no evidence
that the court ever used the movement of MCG’s stock price as a "dis-
positive" test. But more fundamentally, we remind the reader that our
review of a court’s 12(b)(6) dismissal is de novo. As such, we "may
affirm the dismissal by the district court on the basis of any ground
supported by the record even if it is not the basis relied upon by the
district court." Ostrezenski v. Seigel, 177 F.3d 245, 253 (4th Cir.
1999). Thus, we are not compelled to address whether the district
court reached its decision in the correct fashion, so long as we believe
— as we do — that the result is supported by the record.
The extent to which a district court may look at a stock’s price his-
tory to determine whether a fact was material is a difficult issue on
which courts take varying positions.11 The majority rule seems to be
that it can be some evidence, but not, standing alone, dispositive evi-
dence. Because it is unnecessary to the resolution of this case, we
explicitly refrain from taking a position on this thorny issue. We note
only the commonsense proposition that judges are not stockbrokers,
and that, even with the corrective lenses of hindsight, they must be
11See, e.g., No. 84 Employer-Teamster Joint Council Pension Fund v.
America West Holding Corp., 320 F.3d 920, 947-50 (9th Cir. 2003)
(Tallman, J., dissenting and explaining various circuits’ views on how
relevant stock-price behavior is to materiality analysis); Oran v. Stafford,
226 F.3d 275, 282 (3d Cir. 2000) (describing and emphasizing the role
of the market effect on the stock price by the company’s disclosure in
materiality analysis); In re Burlington Coat Factory Sec. Litig., 114 F.3d
1410, 1425 (3d Cir. 1987) (declaring that "because the market for BCF
stock was ‘efficient’ and because the July 29 disclosure had no effect on
BCF’s price, it follows that the information disclosed on September 20
was immaterial as a matter of law."); SEC v. Bausch & Lomb Inc., 565
F.2d 8, 15-16 (2d Cir. 1977) (considerable decrease in price did not
establish materiality per se); Geiger v. Solomon-Page Group, Ltd., 933
F. Supp. 1180, 1188 (S.D.N.Y. 1996) ("Evidence of stock price move-
ment may be relevant to the issue of materiality but it is not determina-
tive."); Simon v. American Power Conversion Corp., 945 F. Supp. 416,
424 (D.R.I. 1996) (viewing a negative reaction by the stock price as
indicative of materiality); Akerman v. Oryx Communications, Inc., 609
F.Supp. 363, 368 (S.D.N.Y. 1984) (lack of significant decrease in stock
price following disclosure did not establish immateriality as a matter of
law), aff’d, 810 F.2d 336 (2d Cir. 1987).
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chary of theories that purport to discern precisely what caused stock
prices to rise or fall.
IV.
In conclusion, while we acknowledge that Mitchell’s lie is indefen-
sible, it does not follow invariably that it is illegal. We hold that,
viewed properly, it is not substantially likely that reasonable investors
would devalue the stock knowing that Mitchell skipped out on his last
year at Syracuse. That is, if one imagines a parallel universe of affairs
where the one and only thing different was that MCG’s filings made
no mention of Mitchell’s education (or, instead, said simply that he
"attended" Syracuse or "studied economics" there), we find it incredi-
ble to believe that MCG’s stock would be worth even a penny more
to a reasonable investor.
AFFIRMED
15 GREENHOUSE v. MCG CAPITAL CORP.

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