The United States Supreme Court in Macquarie Infrastructure Corp. v. Moab Partners, L.P., No. 22-1165, ruled that a corporation is not liable under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 for failing to disclose required information about its future business risks, absent a particular statement rendered misleading by an alleged omission.
On April 12, 2024, the Supreme Court unanimously ruled that nondisclosure of information required by Item 303 of SEC Regulation S-K ("Item 303," also known as Management's Discussion and Analysis in a 10-K or 10-Q) cannot, in the absence of an otherwise misleading statement, support liability under Rule 10b-5(b).
Item 303 requires companies to disclose in SEC filings "known trends or uncertainties" that could have a material impact on net sales, revenues, or income. Shareholder Moab Partners LP ("Moab") sued Macquarie Infrastructure Corporation ("Macquarie") under Rule 10b-5(b), alleging that Macquarie's failure to disclose the likely effects of an impending change in regulations—a "known trend or uncertainty"—violated Item 303 and amounted to securities fraud. The district court dismissed the suit but the Second Circuit reversed, concluding that, consistent with its precedent, Macquarie's alleged Item 303 omission alone was sufficient to support a claim.
Resolving a split between the Second Circuit and the Third, Ninth, and Eleventh Circuits, the Supreme Court vacated the Second Circuit's ruling. The Court concluded that the plain text of Rule 10b-5(b) does not proscribe claims of pure omissions, so an Item 303 violation alone could not support a securities fraud claim. The Court distinguished pure omissions from "half-truths"—"representations that state the truth only so far as it goes, while omitting critical qualifying information"—which are actionable under Rule 10b‑5(b) in light of the Rule's reference to "statements made." The Court further drew on statutory context, as Section 11(a) of the Securities Act of 1933 explicitly creates liability for pure omissions.
The Court rejected Moab's argument that, without private liability for pure omissions under Rule 10b-5(b), there will be "broad immunity" for an issuer that "fraudulently omits information Congress and the SEC require it to disclose." Rather, the Court clarified that private litigants can still bring securities fraud claims based on Item 303 when an affirmative statement is rendered misleading and that the SEC can still pursue Item 303 violations. The Court's decision, however, leaves open what constitutes a "statement made" when a statement is misleading as a half-truth.
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