In re Donald J. Trump Casino Securities Litigation (Kaufman v. Trump's Castle Funding)
United States Court of Appeals for the Third Circuit
7 F.3d 357 (3d Cir. 1993)
Trump and related entities (defendants) issued $675 million in bonds to fund the Taj Mahal casino, with the prospectus expressing belief that operating revenues would cover debt service while also candidly warning that the venture's scale was unprecedented and disclosing risks including intense competition and a narrow peak season; after the venture failed and the defendants filed bankruptcy, bondholder Kaufman (plaintiff) sued individually and on behalf of a class, alleging the prospectus's debt-coverage projections were materially misleading under federal securities law, and the district court dismissed the complaint.
Whether the misleading effect of a statement in a prospectus can be negated by accompanying warnings and cautionary language.