On April 12, 2024, a unanimous U.S. Supreme Court issued an opinion in Macquarie Infrastructure Corp. v. Moab Partners, L.P., vacating a Second Circuit judgment that had reinstated claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 based on an issuer’s alleged failure to disclose business risks posed by an environmental regulation. The Supreme Court held that the Second Circuit erred in holding that a violation of Item 303 of Regulation S-K, which requires disclosure of known trends or uncertainties that may materially impact results, may serve as the basis for a Rule 10b-5 claim. The Court reasoned that Rule 10b-5(b) prohibits false statements and lies, as well as “half-truths”; it does not prohibit “pure omissions.”
Macquarie marks a tightening of standards in the Second Circuit, which for almost a decade stood alone in sustaining Rule 10b-5 claims based on Item 303 nondisclosure, even absent an affirmative misleading statement. On the other hand, Macquarie will not eliminate Item 303-based Rule 10b-5 claims, which will persist where the nondisclosure renders “statements made” misleading.
