Supreme Court Ruling on Securities Exchange Act Raises Discussion

In April of this year, the Supreme Court made a significant ruling in the case of Macquarie Infrastructure Corporation v. Moab Partners, impacting private Rule 10b-5 actions under the Securities Exchange Act of 1934. The decision has raised various discussions within the legal community, particularly in relation to company liability for failure to disclose certain information. 

An article by the law firm Weil, Gotshal & Manges LLP provides valuable insights on the implications of this ruling and warns companies against assuming relaxed disclosure requirements. This decision is expected to have lasting effects on disclosure practices, and companies are advised to carefully evaluate potential trends and uncertainties in their reporting processes.

It is true, according to the writers, that this decision will be a roadblock to cases alleging company liability for failure to describe “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.”

The writers explain how the Court, with a somewhat convoluted chain of logic, distinguished “half-truths” from “pure omissions” in public disclosures. It also explains why the Court concludes that Rule 10b-5, under which the Macquarie plaintiffs brought their claim, covers the former but not the latter.

But other avenues of liability remain, the writers warn. Companies should not assume they can relax their disclosures as a result of the Macquarie decision. In conclusion, they advise that “given the SEC’s focus, if a company is not undertaking the exercise of evaluating potential trends and uncertainties in connection with its quarterly preparation of its MD&A, now would be a good time to start.”