News Release

November 22, 2023
ALF Urges Supreme Court To Reject Securities Fraud Suits Premised On Failure To Publicly Disclose Confidential Business Information

Question Presented:

Whether the implied right of action under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 encompasses claims for alleged omissions of disclosures required under Item 303 of SEC Regulation S-K

"Allowing investors to sue based on alleged failure to disclose trends or uncertainties would force companies to choose between suffering the adverse competitive consequences of over-disclosure of confidential business information or risking significant financial liability in securities fraud litigation."
— Atlantic Legal Foundation
A Securities and Exchange Commission (SEC) regulation, commonly referred to as “Item 303,” requires a publicly traded company to disclose “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact” on its financial performance, 17 C.F.R. § 229.303(b)(2)(ii).

The Supreme Court has granted certiorari in Macquarie Infrastructure Corporation v. Moab Partners, L.P., No. 22-1165, to resolve a circuit split as to whether investor suits can be based on an alleged failure to make a disclosure required under Item 303. ALF has filed an amicus brief urging the Court to hold that such suits are not authorized. The amicus brief was authored by Eric Boettcher and Raffi Melkonian of Wright Close & Barger, LLP & ALF Executive Vice President and General Counsel Larry Ebner.

Case Background

According to SEC guidance, Item 303 disclosure is necessary “where a trend, demand, commitment, event or uncertainty is both presently known to management and reasonably likely to have material effects on the registrant’s financial conditions or results of operations.”

Aggressive investors have seized upon the broad and vague language of Item 303 and the SEC’s interpretative guidance to file securities fraud litigation under Section 10(b) of the Securities Exchange Act premised on alleged omissions of information supposedly required to be disclosed by Item 303. SEC’s Rule 10b-5, which implements Section 10(b), makes it unlawful to “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b).

ALF's Amicus Brief

ALF’s amicus brief focuses on the importance of protecting confidential business information. Given the potentially ruinous monetary damages and other business harms threatened by Section 10(b) class actions, allowing Section 10(b) claims to be based on the failure to make disclosures allegedly required under Item 303 would present companies with a difficult and inappropriate dilemma as to whether to "over-disclose" their confidential business information as a hedge against private-party litigation. Enforcement of Item 303 should be left to the SEC, not to private litigants who could exploit Item 303 by filing unwarranted or even abusive securities fraud class-action damages suits.
Media Contact: Larry Ebner | Tel: 202-349-1421
About the Atlantic Legal Foundation

For more than 46 years, the Atlantic Legal Foundation, a national, nonprofit, nonpartisan, public interest law firm, has advocated in the Supreme Court, federal courts of appeals, and state appellate courts for individual liberty, free enterprise, property rights, limited & responsible government, sound science in judicial & regulatory proceedings, and effective education, including parental rights and school choice.
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