Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D.N.J.: Shareholder fraud claims stemming from failed bank merger dismissed without prejudice, (Dec 1, 2025)

By Rebecca E. Hoffman, J.D.

Employing an established bright line rule, the court determined that, even though First Horizon Corp. and TD Bank were engaged in merger negotiations, First Horizon Corp. shareholders did not have standing to sue TD Bank for making statements that were not about First Horizon.

New Jersey’s federal district court Nov. 26 dismissed—with leave to amend—class action claims against two large bank entities that failed to consummate a merger, in which the shareholders of First Horizon alleged that First Horizon, TD Bank, and their respective principals falsely stated that TD Bank had no issues with compliance and the merger would be successful (In re Toronto-Dominion Bank/First Horizon Corporation Securities Litigation, No. 23-2763 (D.N.J. Nov. 26, 2025)).

According to the plaintiffs, the defendants’ material misstatements caused their stock to artificially gain value, only to drop when the merger ultimately failed. Revelations of TD Bank’s failure to maintain adequate anti-money laundering (AML) policies jeopardized regulatory approval of TD Bank’s acquisition of First Horizon.

Material misstatements. Challenged statements included TD Bank’s president and CEO saying during a conference call that TD Bank “‘prided [itself] in having excellent regulatory relationships,’” and a publicly filed bank merger application stating that both banks had “‘comprehensive anti-money laundering and sanctions programs’ that were ‘designed to ensure compliance with’ applicable laws.’” Despite these assertions, news reports revealed TD Bank’s compliance issues, and regulators began investigating, causing the banks to delay the merger closing date, and the First Horizon stock price to drop.

After the merger was terminated, a news report stated that TD Bank knew regulators would likely block the merger because of the AML deficiencies but did not disclose this for six months. Government investigations led to TD Bank admitting violations and incurring $3 billion in fines and penalties, the court explained.

The plaintiffs’ complaint alleged that the defendants violated Exchange Act Sections 10(b), 14(a), 20(a), and Rule 10b-5. The defendants moved to dismiss.

Purchaser-seller rule. The plaintiffs asserted that the defendants made “false statements and omissions and engag[ed] in deceptive and manipulative acts to defraud investors, which resulted in Plaintiffs paying artificially inflated prices for First Horizon shares.” The TD defendants argued that the plaintiffs did not have standing to sue TD for misstatements unless they were about First Horizon securities, according to the “purchaser-seller” rule. The court predicted that the Third Circuit would follow other circuits that have interpreted the rule thusly, limiting the class of plaintiffs who can bring a Section 10(b) claim for losses, even if such plaintiffs are involved in merger discussions with the defendant. “Even TD Bank’s comments regarding its commitment to the merger and the timeline for obtaining regulatory approval for the merger are not about First Horizon,” the court observed.

Scienter. As for the claims against the First Horizon defendants, the court found that the plaintiffs did not satisfy the requirement of alleging a strong inference of scienter. Allegations that lump the defendants together constitute impermissible “group pleading.” Furthermore, allegations that TD Bank’s AML issues were obvious and First Horizon had to have known about them are undermined by other allegations that TD Bank had “‘actively concealed’” these flaws from regulators, the court said.

The plaintiffs also pointed to First Horizon officers’ large stock sales, but sales in themselves do not give rise to an inference of fraudulent intent, the court found, especially given that the officers retained the majority of their shares after the sales, and the timing of the sales was not suspicious.

Section 14(a) requires a showing that a proxy solicitation was an essential element of a transaction that caused the plaintiffs’ injury. But the merger never came to be, and cannot be the direct cause of the plaintiff’s pecuniary losses, the court held, noting that the merger would have benefited the plaintiffs had it actually happened.

The case is No. 23-2763.

Judge: Bumb, R.

Attorneys: Michael Dains Blatchley (Bernstein Litowitz Berger & Grossmann LLP) for Alpine Funds. James E. Cecchi (Carella Byrne Cecchi Brody & Agnello, PC) for Institutional Investors. Susan M. Leming (Brown & Connery, LLP) for Toronto-Dominion Bank. Barry H. Berke (Kramer Levin Naftalis & Frankel LLP) for First Horizon Corp.

Companies: Toronto-Dominion Bank; First Horizon Corp.

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