Earlier this month, the U.S. Supreme Court unanimously resolved a circuit split on the issue of whether a failure to disclose information under Item 303 of Regulation S-K (the U.S. Securities and Exchange Commission’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, disclosure), without any misleading disclosure, could serve as the basis for a private securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934. In holding that a pure omission could not form the basis of such a claim, the Supreme Court’s decision reversed a decision of the Second Circuit and was consistent with prior decisions of the Third and Ninth Circuits. Macquarie Infrastructure Corp. v. Moab Partners, L.P., No. 22-1165 (U.S., decided April 12, 2024).
While relevant to securities litigation, this case does not change any of the disclosures required in the MD&A section of the filings of public companies. Public companies need to continue to prepare MD&A disclosures that are consistent with the SEC’s requirements. As the Supreme Court pointed out, the SEC retains the authority to prosecute violations of its own regulations.
Public companies should also remain mindful that, once they begin disclosing information, the information that is disclosed should not omit other important information if the omission would make the disclosure a “half truth.” Misleading disclosure can still give rise to private securities fraud claims under Section 10(b).
